Sie sind auf Seite 1von 63

CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION

Based on the Lectures of Atty. Jazzie Sarona


2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

February 14 – Amparo in the trial court seeking the annulment of the subject deed of absolute sale
on the ground that it belongs to the lands of the public domain.
REAL ESTATE MORTGAGE
 It is a contract whereby the debtor secures to the creditor the RTC rendered judgment in favor of respondent spouses, annulling the deed
fulfillment of a principal obligation, specially subjecting to such of absolute sale. CA affirmed.
security immovable property OR real rights over immovable property
which obligation shall be satisfied with the proceeds of sale of said ISSUES:
property or rights in case the principal obligation is not complied with (1) WON private respondent spouses Celebrada and Abner Mangubat should
at the time stipulated. be ordered to pay petitioner DBP their loan obligation due under the
 This is one of the contracts of real security. mortgage contract executed between them and DBP.
(2) WON petitioner should reimburse respondent spouses the purchase price
Characteristics: of the property and the amount of P11, 980.00 for taxes and expenses for
a) It is a contract of real security the relocation Survey.
b) It is an accessory contract
o Its existence and validity depends upon the principal obligation. HELD 1: YES
c) As a contract, it has to have the elements of consent, object and Considering that neither party questioned the legality and correctness of the
consideration. judgment of the court a quo, as affirmed by respondent court, ordering the
o It may have a different consideration from the principal contract. annulment of the deed of absolute sale, such decreed nullification of the
o But even if it does not have a different consideration, it will still document has already achieved finality.
have the same consideration as that of the principal contract from
which it receives its life and without which it cannot exist as an In its legal context, the contract of loan executed between the parties is
independent contract, although the obligation is secured or entirely different and discrete from the deed of sale they entered into. The
incurred by a third person. annulment of the sale will not have an effect on the existence and
o So even if we have a third person that acts as a mortgagor who is demandability of the loan. One who has received money as a loan is bound
allowed under Art. 2085, even if there is no separate consideration to pay to the creditor an equal amount of the same kind and quality.
in favor of that third person-mortgagor, still such mortgage is valid
provided all the other elements are present. The consideration will The fact that the annulment of the sale will also result in the invalidity of the
be that of the principal contract. It will be valid if the principal mortgage does not have an effect on the validity and efficacy of the principal
obligation is valid and cannot be avoided on the ground of lack of obligation, for even an obligation that is unsupported by any security of the
consideration. debtor may also be enforced by means of an ordinary action. Where a
mortgage is not valid, as where it is executed by one who is not the owner of
the property, or the consideration of the contract is simulated or false, the
DBP VS. CA and SPS. MANGUBAT principal obligation, which it guarantees, is not thereby rendered null and
(G.R. No. 110053, October 16, 1995) void. That obligation matures and becomes demandable in accordance with
the stipulations pertaining to it.
FACTS: On April 27, 1965, Pacifico Chica mortgaged the land to DBP to
secure a loan of P6, 000.00. However, he defaulted in the payment of the Under the foregoing circumstances, what is lost is only the right to foreclose
loan, hence DBP caused the extrajudicial foreclosure of the mortgage. the mortgage as a special remedy for satisfying or settling the indebtedness,
In the auction sale held on September 9, 1970, DBP acquired the property as which is the principal obligation. In case of nullity, the mortgage deed
the highest bidder and was issued a certificate of sale on September 17, remains as evidence or proof of a personal obligation of the debtor, and the
1970 by the sheriff. Pacifico Chica failed to redeem the property, and DBP amount due to the creditor may be enforced in an ordinary personal action.
consolidated its ownership over the same.
HELD 2: DBP should reimburse the spouses for the purchase price but not
On October 14, 1980, respondent spouses offered to buy the property for for taxes and expenses for relocation.
P18, 599.99. DBP made a counter- offer of P25, 500.00 which was accepted
by respondent spouses. The parties further agreed that payment was to be A contract, which the law denounces as void, is necessarily no contract
made within six months thereafter for it to be considered as cash payment. whatever, and the acts of the parties in an effort to create one can in no wise
bring about a change of their legal status.
On July 20, 1981, the deed of absolute sale, which is now being assailed
herein, was executed by DBP in favor of respondent spouses. Thereafter, As a general rule, if one buys the land of another, to which the latter is
respondent spouses applied for an industrial tree-planting loan with DBP. supposed to have a good title, and, in consequence of facts unknown alike to
The latter required the former to submit a certification from the Bureau of both parties, he has no title at all, equity will cancel the transaction and
Forest Development that the land is alienable and disposable. However, on cause the purchase money to be restored to the buyer, putting both parties
October 29, 1981, said office issued a certificate attesting to the fact that the in status quo.
said property was classified as timberland, hence not subject to disposition.
The loan application of respondent spouses was nevertheless eventually Thus, on both local and foreign legal principles, the return by DBP to
approved by DBP in the sum of P140, 000.00, despite the aforesaid respondent spouses of the purchase price, plus corresponding interest
certification of the bureau. thereon, is ineluctably called for. However, despite that admission of
respondent spouses’ list of damages as evidence, the Court agrees with
To secure payment of the loan, respondent spouses executed a real estate petitioner that the same cannot constitute sufficient legal basis for an award
mortgage over the land on March 17, 1982, which document was registered of P4, 000.00 and P7, 980.00 as reimbursement for land taxes and expenses
in the Registry of Deeds pursuant to Act No. 3344. However, DBP did not for the relocation survey, respectively. Respondent spouses prepared the list
release the entire amount of the loan ostensibly because the release of the of damages extrajudicially by themselves without any supporting receipts as
land from the then Ministry of Natural Resources had not been obtained. On bases thereof or to substantiate the same. That list, per se, is necessarily
July 7, 1983, respondent spouses, as plaintiffs, filed a complaint against DBP self-serving and, on that account, should have been declared inadmissible in
evidence as the factum probans.

` Page 1 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Notwithstanding that the mortgage is null and void since the mortgagor In your Law on Property, the following shall be considered immovables:
thereof was not the owner of the property. What could be the use of said
Real Estate Mortgage? Does the REM still have relevance? Article 415. The following are immovable property:
SC said that such mortgage would nevertheless be used as an evidence of
the obligation. (1) Land, buildings, roads and constructions of all kinds adhered to the soil;

Discussion: (2) Trees, plants, and growing fruits, while they are attached to the land or
form an integral part of an immovable;
Here, there was no valid sale because the sale involved a timberland,
which is an inalienable property of the public domain and not a valid subject (3) Everything attached to an immovable in a fixed manner, in such a way
matter of a sale. By the nullity of said sale, ownership would not have that it cannot be separated therefrom without breaking the material or
transferred to Sps. Mangubat here, and therefore, they could not have deterioration of the object;
executed a valid mortgage in favor of DBP. So null and void ang sale, null and
void din yung mortgage. (4) Statues, reliefs, paintings or other objects for use or ornamentation,
placed in buildings or on lands by the owner of the immovable in such a
However, the SC emphasized that the principal obligation of the manner that it reveals the intention to attach them permanently to the
contract of loan supposedly secured by the REM is separate and distinct tenements;
from the nullity of the sale.
(5) Machinery, receptacles, instruments or implements intended by the
The fact that the sale will also result in the invalidity of the mortgage owner of the tenement for an industry or works which may be carried on in a
does not have an effect on the validity and the efficacy of the principal building or on a piece of land, and which tend directly to meet the needs of
obligation, for even an obligation that is unsupported by any security of the the said industry or works;
debtor may also be enforced by means of an ordinary action. Why? Because
in the end, nakahiram parin nang pera yung Sps. Mangubat. So no valid (6) Animal houses, pigeon-houses, beehives, fish ponds or breeding places of
mortgage but the loan is nevertheless valid. The principal obligation, which it similar nature, in case their owner has placed them or preserves them with
guarantees, is not thereby rendered null and void by the nullity of the the intention to have them permanently attached to the land, and forming a
mortgage. permanent part of it; the animals in these places are included;

What is lost is only the right to foreclose the mortgage as a special (7) Fertilizer actually used on a piece of land;
remedy for satisfying or settling the indebtedness, which is the principal
obligation. While the mortgage is null and void, it remains as evidence or (8) Mines, quarries, and slag dumps, while the matter thereof forms part of
proof of a personal obligation of the debtor, and the amount due to the the bed, and waters either running or stagnant;
creditor may be enforced in an ordinary personal action.
(9) Docks and structures which, though floating, are intended by their nature
Additional characteristics of a mortgage aside from being accessory in and object to remain at a fixed place on a river, lake, or coast;
nature, it is:
a) Subsidiary- similar to the other security contracts we have discussed. (10) Contracts for public works, and servitudes and other real rights over
b) Unilateral- the obligation is only on the part of the creditor who must immovable property. (334a)
free the property from the encumbrance once the obligation is fulfilled.
SORIANO vs. SPOUSES GALIT
Three kinds of Mortgages:
(G.R. No. 156295, September 23, 2003)
1. Voluntary Mortgage
 A conventional mortgage agreed between the parties and
FACTS: Respondent Ricardo Galit contracted a loan from petitioner Marcelo
constituted with the will of the owner of the property of which it Soriano amounting to P480,000.00. This loan was secured by a REM over a
is created
parcel of land covered by OCT. No. 569. When respondent defaulted in his
2. Legal Mortgage
obligation, Soriano filed a complaint for sum of money against him with the
 Such required by the law to be executed in favor of certain RTC of Balanga City.
persons.
3. Equitable Mortgage Upon failure of the respondent spouses Galit to file their answer, the trial
 Article 1602 gives the circumstances. Such equitable mortgage court declared the spouses in default and it thereafter rendered judgment in
lacks the proper formalities or other requisites of a mortgage favor of petitioner Soriano ordering the respondents to pay. The judgment
required by law. Nevertheless, it reveals the intention of the became final and executory. Deputy Sheriff Renato E. Robles levied on the
parties to burden a real property as a security for a debt following real properties of the Galit spouses:
(inaudible) it’s nothing impossible or contrary to law. (1) A parcel of land covered by OCT No. T-569 (Homestead Patent
No. 14692)
Valid objects of a Real Estate Mortgage (2)STORE/HOUSE – CONSTRUCTED on Lot No. 1103; and
(3)BODEGA – constructed on Lot 1103.
Article 2124. Only the following property may be the object of a contract of
mortgage: On December 23, 1998, petitioner emerged as the highest and only bidder
(1) Immovables; with a bid price of P483,000.00. Thus, on February 4, 1999, Deputy Sheriff
(2) Alienable real rights in accordance with the laws, imposed upon Robles issued a Certificate of Sale of Execution of Real Property. On April 23,
immovables. 1999, petitioner caused the registration of the “Certificate of Sale on
Nevertheless, movables may be the objects of a chattel Execution of Real Property” with the Registry of Deeds.
mortgage. (1874a)

` Page 2 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

10 months from the time the Certificate of Sale on Execution was registered Underscoring the irregularity of the intercalation is the clearly devious
with the Registry of Deeds, petitioner moved for the issuance of a writ of attempt to let such an insertion pass unnoticed by typing the same at the
possession, which was granted by the RTC. This was, however, subsequently back of the first page instead of on the second page which was merely half-
nullified by the Court of Appeals because it included a parcel of land (OCT No. filled and could accommodate the entry with room to spare.
T-40785) which was not among those explicitly enumerated in the Certificate
of Sale issued by the Deputy Sheriff, but on which stand the immovables (the Discussion:
BODEGA and STORE/HOUSE) covered by the said Certificate. Petitioner Here, the SC emphasized that in the foreclosure of a mortgage and the
contends that the sale of these immovables necessarily encompasses the subsequent sale thereof, it must include an explicit enumeration and correct
land on which they stand. description of what properties are sold. This must be stated in the notice of
foreclosure.
ISSUES:
(1) WON the land on which the buildings levied upon in execution is In fact, an incorrect title number together with a correct technical
necessarily included. description of the property to be sold and vice versa is deemed a substantial
(2) WON the cert. of sale on execution of real property and the writ of and fatal error, which results in the invalidation of the sale. Here,
possession are null and void despite the fact that they enjoy the subsequently including properties, which have not been explicitly mentioned
presumption of regularity being public documents. therein for registration purposes under suspicious circumstances smacks of
fraud.
HELD:
(1) NO. Art. 415 of the Civil Code enumerates land and buildings separately. Also in this case, the land itself is separate from the building and vice
This can only mean that a building is, by itself, considered immovable. Thus, versa. What was subject in the mortgage here is the storehouse and the
it has been held that while it is true that a mortgage of land necessarily bodega, and hindi kasama yung land. SC emphasized that a mortgage of land
includes, in the absence of stipulation of the improvements thereon, necessarily includes, in the absence of stipulation of the improvements
buildings, still a building by itself may be mortgaged apart from the land on thereon, buildings. But still a building by itself, like in this case a bodega and
which it has been built. Such mortgage would be still a real estate mortgage a storehouse, may be mortgaged apart from the land on which it has been
for the building would still be considered immovable property even if dealt built. Such mortgage would be still a real estate mortgage for the building
with separately and apart from the land. would still be considered an immovable property even if dealt with
separately and apart from the land.
In this case, considering that what was sold by virtue of the writ of execution
issued by the trial court was merely the storehouse and bodega constructed What was sold by virtue of the writ of execution was merely the
on the parcel of land covered by Transfer Certificate of Title No. T- 40785, storehouse and bodega constructed on the parcel of land which by
which by themselves are real properties of respondent spouses, the same themselves are real properties of respondent spouses, the same should be
should be regarded as separate and distinct from the conveyance of the lot regarded as separate and distinct from the conveyance of the lot on which
on which they stand. they stand.

(2) YES. No reason has been offered how and why the questioned entry was (2) Alienable real rights in accordance with the laws, imposed upon
subsequently intercalated in the copy of the certificate of sale subsequently immovables.
registered with the Registry of Deeds. Absent any satisfactory explanation as  Rights over the immovables; right to use such property such as
to why said entry was belatedly inserted, the surreptitiousness of its usufruct.
inclusion coupled with the furtive manner of its intercalation casts serious  It is not the property itself but your right over the property.
doubt on the authenticity of petitioner’s copy of the Certificate of Sale. Thus,  A real right over a real property can be a subject of a mortgage
it has been held that while a public document like a notarized deed of sale is
vested with the presumption of regularity, this is not a guarantee of the Also, under Art. 2124 what does the word “ONLY” mean?
validity of its contents.  These 2 objects mentioned are the only valid subject matters of a
mortgage.
It must be pointed out in this regard that the issuance of a Certificate of Sale  Meaning the list under said article is EXCLUSIVE.
is an end result of judicial foreclosure where statutory requirements are
strictly adhered. Among these requirements is an explicit enumeration and However, if what you have are movable properties, then what you have
correct description of what properties are to be sold stated in the notice. An there is a chattel mortgage.
incorrect title number together with a correct technical description of the
property to be sold and vice versa is deemed a substantial and fatal error, In relation to Art. 2085, one of the essential requisites to the contract of
which results in the invalidation of the sale. mortgage is that the mortgagor must be the absolute owner of the thing
mortgaged, so:
The certificate of sale is an accurate record of what properties were actually
sold to satisfy the debt. The strictness in the observance of accuracy and General Rule: Future property cannot be a valid subject matter of a
correctness in the description of the properties renders the enumeration in mortgage. Because if it is not yet in existence, how could one possibly own
the certificate exclusive. Thus, subsequently including properties, which have the same.
not been explicitly mentioned therein for registration purposes under
suspicious circumstances smacks of fraud. The explanation that the land on
MENDOZA, also doing business under the name and style of ATLANTIC
which the properties sold is necessarily included and, hence, was belatedly
EXCHANGE PHILIPPINES, vs. CA, PNB. Et.al
typed on the dorsal portion of the copy of the certificate subsequently
(G.R. No. 116710, June 25, 2001)
registered is at best a lame excuse unworthy of belief.
FACTS: Danilo D. Mendoza is engaged in the domestic and international
The appellate court correctly observed that there was a marked difference in
trading of raw materials and chemicals. He operates under the business
the appearance of the typewritten words appearing on the first page of the
name Atlantic Exchange Philippines (Atlantic).
copy of the Certificate of Sale registered with the Registry of Deeds and
those appearing at the dorsal portion thereof.

` Page 3 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Sometime in 1978 he was granted by respondent PNB a 500,000.00 credit Besides, the petitioner executed not only a chattel mortgage but also a real
line and a 1,000,000.00 Letter of Credit/Trust Receipt (LC/TR) line. estate mortgage to secure his loan obligations to respondent bank.

As security for the credit accommodations and for those that may A stipulation in the mortgage, extending its scope and effect to after-
thereinafter be granted, petitioner mortgaged to respondent PNB 3 parcels acquired property is valid and binding where the after-acquired property is
of land with improvements; his house and lot and several pieces of in renewal of, or in substitution for, goods on hand when the mortgage was
machinery and equipment in his Pasig cocochemical plant. executed, or is purchased with the proceeds of the sale of such goods.

Petitioner executed in favor of respondent PNB 3 promissory notes covering More importantly, respondent bank makes a valid argument for the
the P500, 000.00 credit line. Petitioner made use of his LC/TR line to retention of the subject movables. PNB asserts that those movables were in
purchase raw materials from foreign importers. fact "immovables by destination" under Art. 415 (5) of the Civil Code. It is an
established rule that a mortgage constituted on an immovable includes not
On March 9, 1981, he wrote a letter to respondent PNB requesting for the only the land but also the buildings, machinery and accessories installed at
restructuring of his past due accounts into a five-year term loan and for an the time the mortgage was constituted as well as the buildings, machinery
additional LC/TR line of P2, 000,000.00. He reasoned that because of the and accessories belonging to the mortgagor, installed after the constitution
shutdown of his end-user companies and the huge amount spent for the thereof.
expansion of his business, petitioner failed to pay to respondent bank his
LC/TR accounts as they became due and demandable. PNB Mandaluyong What is the intention of the parties here?
replied on behalf of the respondent bank and required petitioner to submit Those properties will secure the mortgage and authorizing the bank to sell
documents: Audited Financial Statements for 1979 and 1980; Projected cash the same in case there is failure to pay.
flow (cash in - cash out) for 5 years detailed yearly; and the List of additional
machinery and equipment and proof of ownership thereof. What are after-acquired properties?
Those properties acquired after the execution of the mortgage.
On September 25, 1981, petitioner sent another letter addressed to PNB
Vice-President Jose Salvador, regarding his request for restructuring of his Can this be a valid subject of a mortgage?
loans. He offered respondent PNB the following proposals: Yes, where the after-acquired property is in renewal of, or in substitution for,
1) The disposal his house and lot and a vacant lot in order to pay goods on hand when the mortgage was executed, or is purchased with the
the overdue trust receipts; proceeds of the sale of such goods.
2) Capitalization and conversion of the balance into a 5-year term
loan payable semi-annually or on annual installments; Is this definition of after-acquired properties applicable in this case?
3) a new P2,000,000.00 LC/TR line in order to enable Atlantic Yes these properties according to the SC are immovables. Under Article 415,
Exchange Philippines to operate at full capacity. if these machineries are intended by the owner of the tenement for an
industry or works which may be carried on in a building or on a piece of land,
Fernando Maramag, PNB Executive Vice- President, disapproved the and which tend directly to meet the needs of the said industry or works,
proposed release of the mortgaged properties and reduced the proposed then it is considered as an immovable by destination.
new LC/TR line P1,000,000.00. Petitioner claimed that he was forced to
agree to these changes and that the respondent PNB approved his proposal. Discussion:
He further claimed that he and his wife were asked to sign 2 blank Here, the bank was authorized to sell "things of value" belonging to the
promissory note forms. And that they were made to believe that the blank mortgagor "which may be on its hands for deposit or otherwise belonging to
promissory notes were to be filled out by respondent PNB to conform with me/us and for this purpose." The petitioner here executed not only a chattel
the 5-year restructuring plan allegedly agreed upon. mortgage but also a real estate mortgage to secure his loan obligations to
respondent bank.
Petitioner testified that respondent PNB allegedly contravened their verbal
agreement by affixing dates on the 2 subject promissory notes to make them The SC emphasized that after-acquired properties or properties
mature in 2 years instead of 5 years as supposedly agreed upon. acquired after the execution of a mortgage may still be valid subject matter
of a mortgage where the after-acquired property is in renewal of, or in
Upon their failure to make good of the said loans PNB extra-judicially substitution for, goods on hand when the mortgage was executed, or is
foreclosed the real and chattel mortgages, and the mortgaged properties purchased with the proceeds of the sale of such goods. With that definition,
were sold at public auction to respondent PNB, as highest bidder, for a total this more pertains to movable or personal properties.
of P3, 798,719.50.
For example: Inventory sa tindahan. Those goods that are part of the
ISSUE: WON the foreclosure sale was proper. inventory could be a subject of a chattel mortgage. What will happen? Since
HELD: YES part sya sa tindahan, mabenta sya then i-replenish naman ng inventory.
The court found out that PNB did not categorically agree to Notwithstanding that you have used stocks in the inventory, the fact that
petitioner’s proposal to extend the credit line to five years. you have stipulated that the said inventory of the store would constitute or
form part of the mortgage, it is still a valid subject matter thereof.
On the substantive issue of mortgage:
Petitioner did not present any proof as to when he acquired the subject Also, it is an established rule that a mortgage constituted on an
movables and hence it is not to be believe that the same were "after immovable includes not only the land but also the buildings, machinery and
acquired" chattels not covered by the chattel and real estate mortgages. accessories installed at the time the mortgage was constituted as well as the
buildings, machinery and accessories belonging to the mortgagor, installed
In asserting its rights over the subject movables, respondent PNB relies on a after the constitution thereof. So even if you have machinery, which you can
common provision in the 2 subject Promissory Notes which is clear, however describe as a movable property, still, go back to what are considered as
that respondent bank is authorized, in case of default, to sell "things of immovable properties under the law. If bolted yung movable, yung intention
value" belonging to the mortgagor "which may be on its hands for deposit dyan, magiging immovable na sya by destination.
or otherwise belonging to me/us and for this purpose."

` Page 4 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Pledge Real Estate Mortgage Thus, PCI Bank extrajudicially foreclosed the mortgage before the Regional
Involves personal property Involves real properties Trial Court (RTC) and that the mortgaged properties were sold at a public
Requires delivery for its Does not require delivery for auction.
perfection perfection
Pledgee has possession of the It is not required that the Respondent contended that the absence of stipulation in the mortgage
thing pledge mortgagee will possess the contract securing the payment of 15% interest per annum on the principal
real property loan, as well as the 3% penalty fee per month on the outstanding amount, is
Extrajudicial foreclosure Judicial or extrajudicial immaterial since the mortgage contract is "a mere accessory contract which
foreclosure must take its bearings from the principal Credit Line Agreement."
Pledgee has the right to Such right is not available to
receive the fruits and apply the mortgagee in the REM ISSUE: WON the mortgage contract also secured the penalty fee per month
the same to the obligation unless otherwise stipulated on the outstanding amount as stipulated in the Credit Line Agreement.
by the parties
HELD: NO. A mortgage must "sufficiently describe the debt sought to be
General Rule: The mortgagor retains possession of the property mortgaged secured, which description must not be such as to mislead or deceive, and an
as security for the payment of the sum borrowed from the mortgagee. obligation is not secured by a mortgage unless it comes fairly within the
 The debtor merely subjects the property to a lien but ownership is not terms of the mortgage.
parted with.
The Real Estate Mortgage contract states its coverage, thus: That for and in
XPN: The parties may stipulate that pending the performance or payment of consideration of certain loans, credit and other banking facilities obtained x
the obligation, the mortgagee will have possession of the mortgaged xx from the Mortgagee, the principal amount of which is PESOS FOUR
property. MILLION SEVEN HUNDERED THOUSAND ONLY (P4,700,000.00) Philippine
 So pwede by stipulation but not required for validity ha. Currency, and for the purpose of securing the payment thereof, including the
 The reason for this is that it is not an essential requisite of the contract interest and bank charges accruing thereon, xxx
of mortgage that the property remains in possession of the mortgagor.
 The mortgagor may deliver the property to the mortgagee without The immediately quoted provision of the mortgage contract does not
altering the nature of the contract. specifically mention that, aside from the principal loan obligation, it also
secures the payment of "a penalty fee of three percent (3%) per month of
the outstanding amount to be computed from the day deficiency is incurred
Article 2085. xxx
up to the date of full payment thereon,”
Third persons who are not parties to the principal obligation may secure
the latter by pledging or mortgaging their own property. (1857)
Since an action to foreclose "must be limited to the amount mentioned in
the mortgage" and the penalty fee of 3% per month of the outstanding
So, a third person can act as a mortgagor. Sometimes, what will happen obligation is not mentioned in the mortgage, it must be excluded from the
is that, this owner will execute an SPA in favor of the principal debtor to computation of the amount secured by the mortgage.
which the principal debtor is the one who will sign the REM. Pwede ba yan?
Actually, YES. Regarding CA decision that the phrase "including the interest and bank
charges" in the mortgage contract "refers to the penalty charges stipulated
What do you have to make sure, especially if you are a creditor, it must in the Credit Line Agreement" is unavailing.
be clearly stipulated therein that he signs the same for and in behalf of the
owner mortgagor. Because even if the said debtor is actually authorized by "Penalty fee" is entirely different from "bank charges." The phrase "bank
the owner-mortgagor, if the REM signed by the debtor not indicating that he charges" is normally understood to refer to compensation for services. A
is only acting in behalf of said third person who is the owner-mortgagor or as "penalty fee" is likened to a compensation for damages in case of breach of
an agent, who is considered as the mortgagor is still the principal debtor not the obligation. Being penal in nature, such fee must be specific and fixed by
the true owner of the property. the contracting parties, unlike in the present case which slaps a 3% penalty
fee per month of the outstanding amount of the obligation.
EFFECT: The mortgagor is not the true owner of the property mortgaged, so
there is no valid mortgage to speak of. Moreover, the "penalty fee" does not belong to the species of obligation
enumerated in the mortgage contract, namely: "loans, credit and other
SPOUSES VIOLA vs. EQUITABLE banking facilities obtained x xx from the Mortgagee, . . . including the
(2008) interest and bank charges, . . . the costs of collecting the same and of taking
possession of and keeping the mortgaged properties, and all other expenses
FACTS: March 31, 1997 Spouses Viola of Leo-Mers Commercial, Inc. obtained to which the Mortgagee may be put in connection with or as an incident to
a loan through a credit line facility in the maximum amount of P this mortgage . . ."
4,700,000.00 from Equitable PCI Bank, Inc. The Agreement stipulated that
the loan would bear interest at the "prevailing PCI Bank lending rate" per In Philippine Bank of Communications v. Court of Appeals, which raised a
annum on the principal obligation and a "penalty fee of three percent (3%) similar issue, this Court held:
per month on the outstanding amount."
The court held, indeed, a mortgage must sufficiently describe the debt sought
To secure the payment of the loan, an REM over their 2 parcels of land in to be secured, which description must not be such as to mislead or deceive,
favor of PCI Bank was executed. Spouses Viola made partial payments which and an obligation is not secured by a mortgage unless it comes fairly within
totaled P 3,669,210.67; PCI Bank contends however, that Spouses Viola the terms of the mortgage.
made no further payments since Nov. 24, 2000 despite demand they failed
to pay their outstanding obligation which as of September 30, 2002. Under the rule of ejusdem generis, where a description of things of a
particular class or kind is "accompanied by words of a generic character, the
generic words will usually be limited to things of a kindred nature with those

` Page 5 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

particularly enumerated . . . " A penalty charge does not belong to the February 21 – Pabalan
species of obligations enumerated in the mortgage, hence, the said contract
cannot be understood to secure the penalty. Art. 2124. Only the following property may be the object of a contract of
mortgage:
Regarding Respondent’s contention that absence of stipulation for the (1) Immovables;
penalty fee in the mortgage contract is of no consequence as the deed of (2) Alienable real rights in accordance with the laws, imposed upon
mortgage is merely an “accessory contract” that "must take its bearings from immovables.
the principal Credit Line Agreement,".
Nevertheless, movables may be the object of a chattel mortgage. (1874a)
Such absence is significant as it creates an ambiguity between the two
contracts, which ambiguity must be resolved in favor of petitioners and
Art. 2125. In addition to the requisites stated in Article 2085, it is
against respondent who drafted the contracts. Again, as stressed by the
indispensable, in order that a mortgage may be validly constituted, that
Court in Philippine Bank of Communications:
the document in which it appears be recorded in the Registry of Property.
If the instrument is not recorded, the mortgage is nevertheless binding
A mortgage and a note secured by it are deemed parts of one transaction
between the parties.
and are construed together, thus, an ambiguity is created when the notes
provide for the payment of a penalty but the mortgage contract does not.
The persons in whose favor the law establishes a mortgage have no other
Construing the ambiguity against the petitioner, it follows that no penalty
right than to demand the execution and the recording of the document
was intended to be covered by the mortgage. Plainly, the petitioner can be as
in which the mortgage is formalized. (1875a)
specific as it wants to be, yet it simply did not specify nor even allude to, that
the penalty in the promissory notes would be secured by the mortgage. This
can then only be interpreted to mean that the petitioner had no design of You have to distinguish mortgage from a contract of pledge. In a contract of
including the penalty in the amount secured. pledge, registration is not needed to bind third parties.

Therefore, the "penalty fee" per month of the outstanding obligation is CASE:
excluded in the computation of the amount secured by the Real Estate
Mortgage executed by petitioners in respondent’s favor. G.R. No. L-38745 August 6, 1975
TAN vs. VALDEHUEZA
Discussion:
The SC here emphasized that a mortgage must sufficiently describe the Facts:
debt sought to be secured, which description must not be such as to mislead
or deceive, and an obligation is not secured by a mortgage unless it comes The Valdehuezas have executed two documents of DEED OF PACTO DE
fairly within the terms of the mortgage. RETRO SALE (Deed of Sale with right to repurchase) in favor of the LUCIA
TAN of two portions of a parcel of land.
Clearly, there was a distinction between what was provided under the
Credit Line Agreement and under the REM. While it is true that the Spouses Despite the execution of the Deed of Sale with right to repurchase, the
here agreed to pay the obligation, collection expenses, and the penalty of 3% Valdehuezas remained in the possession of the land; that land taxes to the
per month, it does not automatically mean that they have the same said land were paid by the same said defendants. As such, the contracts
coverage under the REM. Because the REM here only states that the sale which purported to be pacto de retro transactions are presumed to be
was for the purpose of securing the payment of the principal obligation equitable mortgages. At issue is the equitable mortgage that was not
including the interest and bank charges. So it was not mentioned in the REM registered.
that it would cover the 3% per month penalty.
The controversy arose when a suit was filed by Tan to foreclose the
An action to foreclose must be limited to the amount mentioned in the unregistered mortgage.
mortgage and the penalty fee of 3% per month of the outstanding obligation
is not mentioned in the mortgage, it must be excluded from the computation The Valdehuezas argued that no suit lies to foreclose an unregistered
of the amount secured by the mortgage. (equitable) mortgage.

Also, in this case, the SC differentiated bank charges and penalty fee Issue:
since bank charges were included in the REM. Whether or not an unregistered mortgage may be foreclosed

Whether or not an unregistered mortgage is binding between the parties


Bank Charges Penalty fee
Compensation for services. Compensation for damages
Ruling:
in case of break;
An order for foreclosure cannot be refused on the ground that the mortgage
It is penal in nature;
had not been registered. The unregistered mortgage is still binding between
the parties provided no innocent third parties are involved.
Such fee must be specific and
fixed by the contracting
parties. An order for foreclosure cannot be refused on the ground that the mortgage
had not been registered. The registered or unregistered mortgage is binding
In this case, there such stipulation for penalty fee in the REM is absent. between the parties.
So the effect is that the penalty fee should be excluded from the
computation of the amount secured by the Real Estate Mortgage executed We have to compare this case to the earlier case of Hechanova vs. Adil
by petitioners in respondent’s favor. where the Court held that no valid mortgage is constituted where the

` Page 6 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

alleged deed of mortgage is a mere private document and, therefore, is not Such mortgage was foreclosed upon failure of Solid to comply with its
registered. obligations. Thereafter, Solid through a MOA, negotiated for the deferment
of consolidation of ownership over the foreclosed properties. It further
If a mortgage is in a private document, it could not be registered. The committed itself to redeem the properties.
creditor may nevertheless recover the loan, although the mortgage
evidenced in the loan was not registered being a private document. Spouses Oreta after a few years filed a complaint before the HLURB against
However the creditor has the right to compel the debtor to execute a Solid and State for failure on the part of Solid to execute the necessary
contract of mortgage in a public document. absolute deed of sale as well as to deliver title to property subject of the
contract to sell despite full payment.
If the mortgage is in a public instrument but the mortgage is not registered,
the mortgage is nevertheless binding on the parties as provided in Article Solid alleged that its obligations under the contract have become so difficult
2125, and the registration will only operate as a notice on the mortgage to for performance.
third persons but it neither adds to the validity nor does it convert a valid
mortgage into a valid one. Solid, in effect, asked to be partially released from its obligations by
delivering another parcel of land in substitution to the subject of the sale.
In relation to mortgages, we also have to consider the “Doctrine of a
Mortgagee in Good Faith”. State Investment, on the other hand averred that unless Solid pays the
redemption price, it has a right to hold on to the foreclosed properties.
Doctrine of mortgagee in good faith: However, HLURB ordered State to execute a deed of conveyance in favor of
complainants and deliver the title to the land.
A mortgagee has a right to rely in good faith on the certificate of title of the
mortgagor of the property given as security and in the absence of any sign Issue: Who has a better right over the property?
that might arouse suspicion, has no obligation to undertake further (Spouse Oreta who were the buyers of the subject property but the sale was
investigation. Hence, even if the mortgagor is not the rightful owner of, or unregistered OR State Investment holding a registered mortgage against
does not have a valid title to, the mortgaged property, the mortgagee in Solid Homes)
good faith is nonetheless entitled to protection.
Ruling: Spouses Oreta have the better right over the subject property.
EXCEPTIONS:
State Investment’s registered mortgage right over the property is inferior to
(This was discussed by Atty. Sarona in the later part of the lecture. I just that of respondents' unregistered right. The unrecorded sale is preferred for
placed it here for a better flow.) the reason that if the original owner (Solid) had parted with the ownership
of the thing sold, he would no longer have the free disposal of it and would
1.Where the purchaser or mortgagee has knowledge of a defect or lack of not be able to mortgage it. Registration of the mortgage is not important
title in the vendor since it is understood to be without prejudice to the rights of third persons.

2.The mortgagee does not directly deal with the registered owner of real As a general rule, where there is nothing in the title to indicate any cloud or
property. or vice in the ownership thereof, the purchaser is not required to explore
further.
3.The mortgagee was aware of sufficient facts to induce a reasonably
prudent man to inquire into the status of a property in litigation. An exception to this is when the mortgagee or purchaser has knowledge of a
defect or lack of title on the part of the vendor or that he was aware of
4. When the purchaser or mortgagee is a bank or financing institution, the sufficient facts to induce a reasonably prudent man to inquire further.
general rule that a purchaser or mortgagee of land is not required to look
further than what appears on the face of the title does not apply. A In this case, State Investment knows full well that Solid Holmes is engaged in
mortgagee-bank is expected to exercise greater care and prudence before selling subdivision lots. Therefore, as founded on jurisprudence, it should
entering into a mortgage contract even those involving registered lands in its have taken necessary precautions to ascertain any flaw.
dealings than private individuals as their business is impressed with public
interest. Moreover, the uniform practice of financing institutions is to investigate,
examine, and assess real property offered as security. State Investment is
therefore not a mortgagee in good faith.
G.R. No. 115548. March 5, 1996
STATE INVESTMENT HOUSE INC vs. CA STATE’s registered mortgage right over the property is inferior to that of
respondents-spouses unregistered right. The unrecorded sale between
Facts: A contract to sell was executed between Spouses Oreta, and Solid respondents-spouses and SOLID is preferred for the reason that if the
Homes. The sale involved a parcel of land (511 sq. m.). original owner (SOLID, in this case) had parted with his ownership of the
thing sold then he no longer had ownership and free disposal of that thing so
Upon signing of the contract, Spouses Oreta made payment with the as to be able to mortgage it again.[
agreement that the balance shall be paid in installments. The sale of the
property was however not registered. Registration of the mortgage is of no moment since it is understood to be
without prejudice to the better right of third parties.
Meanwhile. Solid Homes executed several mortgages in favor of State
Investment over its subdivided parcels of land, including the subject of land As a general rule, where there is nothing in the certificate of title to indicate
of the mentioned contract to sell with the Spouses Oreta. The mortgage any cloud or vice in the ownership of the property, or any encumbrance
executed by Solid Homes was registered under Torrens. thereon, the purchaser is not required to explore further than what the
Torrens Title upon its face indicates in quest for any hidden defect or
inchoate right that may subsequently defeat his right thereto.

` Page 7 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Banks are expected to be more cautious than ordinary individuals in dealing


This rule, however, admits of an exception as where the purchaser or with lands, even registered ones, since the business of banks is imbued with
mortgagee, has knowledge of a defect or lack of title in his vendor, or that he public interest.
was aware of sufficient facts to induce a reasonably prudent man to inquire
into the status of the title of the property in litigation. It is of judicial notice that the standard practice for banks before approving a
loan is to send a staff to the property offered as collateral and verify the
In this case, petitioner was well aware that it was dealing with SOLID, a genuineness of the title to determine the real owner or owners.
business entity engaged in the business of selling subdivision lots.
In this case is that in the course of its verification, petitioner PNB was
State Investment’s constructive knowledge of the defect in the title of the informed of the previous TCTs covering the subject property.
subject property, or lack of such knowledge due to its negligence, takes the
place of registration of the rights of respondents-spouses. Respondent court It is evident from the faces of those titles that the ownership of the land
thus correctly ruled that petitioner was not a purchaser or mortgagee in changed from Corpuz to Bondoc, from Bondoc to the Palaganases, and from
good faith; hence petitioner cannot solely rely on what merely appears on the Palaganases to the Songcuans in less than three months and mortgaged
the face of the Torrens Title. to PNB within four months of the last transfer.

G.R. No. 180945 February 12, 2010 The above information in turn should have driven the PNB to look at the
PHILIPPINE NATIONAL BANK vs. CORPUZ deeds of sale involved. It would have then discovered that the property was
sold for ridiculously low prices: Yet the PNB gave the property an appraised
* FACTS are from full text, in toto value of P781,760.00.

Facts: On October 4, 1974 respondent Mercedes Corpuz delivered her Anyone who deliberately ignores a significant fact that would create
owners duplicate copy of Transfer Certificate of Title (TCT) 32815 to Dagupan suspicion in an otherwise reasonable person cannot be considered as an
City Rural Bank as security against any liability she might incur as its cashier. innocent mortgagee for value.
She later left her job and went to the United States.

On October 24, 1994 the rural bank where she worked cancelled its lien on G.R. No. 196118 July 30, 2014
Corpuzs title, she having incurred no liability to her employer. Without LEONARDO C. CASTILLO vs. SECURITY BANK CORPORATION
Corpuzs knowledge and consent, however, Natividad Alano, the rural banks
manager, turned over Corpuzs title to Julita Camacho and Amparo Callejo. Facts: Leonardo and Leon Castillo are siblings. Leon and his wife own a
poultry business. The spouses later on obtained a loan from Security Bank.
Conniving with someone from the assessors office, Alano, Camacho, and As a security of such loan, they mortgaged 11 parcels of land co-owned by
Callejo prepared a falsified deed of sale, making it appear that on February the Castillo siblings, including Leonardo. Eventually, the spouses failed in
23, 1995 Corpuz sold her land to one Mary Bondoc for P50,000.00. They their obligation to Security Bank, thus the mortgages involving the 11 parcels
caused the registration of the deed of sale, resulting in the the issuance of a of land were foreclosed. The spouses however were able to redeem the
TCT in Bondocs name. About a month later or on March 27, 1995 the trio properties except the portion which was supposed to be the share of
executed another fictitious deed of sale with Mary Bondoc selling the Leonardo.
property to the spouses Rufo and Teresa Palaganas for only P15,000.00. This
sale resulted in the issuance of TCT 63466 in favor of the Palaganases. Leonardo then filed an action to annul the real estate mortgage. Leonardo
asserts that his signature in the SPA authorizing his brother, Leon, to
Nine days later or on April 5, 1995 the Palaganases executed a deed of sale mortgage his property was forged/falsified. He claims that he was in America
in favor of spouses Virgilio and Elena Songcuan for P50,000.00, resulting in at the time of its execution. As proof of the forgery, he focuses on his alleged
the issuance of TCT 63528. CTC used for the notarization of the SPA on May 5, 1993 and points out that
it appears to have been issued on January 11, 1993 when, in fact, he only
Finally, four months later or on August 10, 1995 the Songcuans took out a obtained it on May 17, 1993.
loan of P1.1 million from petitioner Philippine National Bank (PNB) and, to
secure payment, they executed a real estate mortgage on their title. Before Issue: Whether or not Security Bank is a mortgagee in good faith?
granting the loan, the PNB had the title verified and the property inspected.
Ruling:
On November 20, 1995 respondent Corpuz filed, through an attorney-in-fact,
a complaint before the Dagupan Regional Trial Court (RTC) against Mary Yes.
Bondoc, the Palaganases, the Songcuans, and petitioner PNB, asking for the
annulment of the layers of deeds of sale covering the land, the cancellation Allegations of forgery, like all other allegations, must be proved by clear,
of TCTs 63262, 63466, and 63528, and the reinstatement of TCT 32815 in her positive, and convincing evidence by the party alleging it. It should not be
name. presumed, but must be established by comparing the alleged forged
signature with the genuine signatures.11 Here, Leonardo simply relied on his
Issue: Whether or not petitioner PNB is a mortgagee in good faith self-serving declarations and refused to present further corroborative
evidence, saying that the falsified document itself is the best evidence.12 He
Ruling: As discussed by Atty. Sarona: did not even bother comparing the alleged forged signature on the SPA with
No. As a rule, the Court would not expect a mortgagee to conduct an samples of his real and actual signature. What he consistently utilized as lone
exhaustive investigation of the history of the mortgagors title before he support for his allegation was the supposed discrepancy on the date of
extends a loan.. issuance of his CTC as reflected on the subject SPA’s notarial
acknowledgment.
But petitioner PNB is not an ordinary mortgagee; it is a bank.
Thus, failing to prove such forgery, the presumption of regularity applies to
the SPA.

` Page 8 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Atty. Sarona reads a part of the ruling in toto: last clear chance is to the effect that where both parties are negligent but
the negligent act of one is appreciably later in point of time than that of the
True, banks and other financing institutions, in entering into mortgage other, or where it is impossible to determine whose fault or negligence
contracts, are expected to exercise due diligence. The ascertainment of the brought about the occurrence of the incident, the one who had the last clear
status or condition of a property offered to it as security for a loan must be a opportunity to avoid the impending harm but failed to do so, is chargeable
standard and indispensable part of its operations. In this case, however, no with the consequences arising therefrom. Stated differently, the rule is that
evidence was presented to show that SBC was remiss in the exercise of the the antecedent negligence of a person does not preclude recovery of
standard care and prudence required of it or that it was negligent in damages caused by the supervening negligence of the latter, who had the
accepting the mortgage. SBC could not likewise be faulted for relying on the last fair chance to prevent the impending harm by the exercise of due
presumption of regularity of the notarized SPA when it entered into the diligence.
subject mortgage agreement.
Here the court emphasized that the degree of diligence required of banks is
G.R. No. 112160 February 28, 2000 more than that of a good father of a family; in keeping with their
OSMUNDO S. CANLAS and ANGELINA CANLAS, vs. COURT OF APPEALS and responsibility to exercise the necessary care and prudence in dealing even on
ASIAN SECURITY BANK (ASB) a registered or titled property. The business of a bank is affected with public
interest, holding in trust the money of the depositors, which bank deposits
Facts: Canlas and Mañosca decided to venture in business. To raise capital, the bank should guard against loss due to negligence or bad faith, by reason
Canlas executed an SPA authorizing Mañosca to mortgage 2 parcels of land. of which the bank would be denied the protective mantle of the land
Eventually, Canlas agreed to sell these to Mañosca for 850k. Canlas delivered registration law, accorded only to purchasers or mortgagees for value and in
the TCTs, and Mañosca issued postdated checks (40k, 460k), but the check good faith.
for 460k was not sufficiently funded.
Mañosca was able to mortgage the parcels of land to an Atty. Magno
In the case under consideration, from the evidence on hand it can be
with the help of impostors who misrepresented themselves as Sps. Canlas
gleaned unerringly that respondent bank did not observe the requisite
[fake couple]. Mañosca was granted a 500k loan by Asian Savings Bank [ASB]
diligence in ascertaining or verifying the real identity of the couple who
with the involvement of the fake couple. [TOWARDS THE END OF THE CASE,
introduced themselves as the spouses Osmundo Canlas and Angelina Canlas.
it was said that Canlas was with Mañosca when the latter submitted
It is worthy to note that not even a single identification card was exhibited
documents for the loan application. Mañosca showed Canlas several TCTs,
by the said impostors to show their true identity; and yet, the bank acted on
which were collaterals for the loan, and Canlas was confident that his parcels
their representations simply on the basis of the residence certificates
of land were not involved. However, Mañosca used Sps. Canlas’ parcels of
bearing signatures which tended to match the signatures affixed on a
land as collaterals. A 200k check was released, and Canlas received it as
previous deed of mortgage to a certain Atty. Magno, covering the same
payment of the parcels of land he sold to Mañosca.
parcels of land in question.
The loan was not paid so the mortgage was foreclosed. Canlas wrote to ASB,
saying that the execution of the mortgage was without their authority, so As stated by Atty Sarona from the case in toto:
steps should be taken to annul the mortgage. Canlas also wrote the sheriff to
cancel the auction sale; however, the sale pushed through. The efforts exerted by the bank to verify the identity of the couple posing as
Sps. Canlas instituted a case for annulment of deed of real estate Osmundo Canlas and Angelina Canlas fell short of the responsibility of the
mortgage [REM], with prayer for the issuance of a writ of preliminary bank to observe more than the diligence of a good father of a family.
injunction. RTC issued an order restraining the sheriff from issuing the
Certificate of Sheriff’s Sale, and it annulled the REM. CA reversed RTC, The negligence of respondent bank was magnified by the fact that the
holding that the REM was valid, that Sps. Canlas are not entitled to relief previous deed of mortgage (which was used as the basis for checking the
because of their negligence. CA said ASB exercised due diligence in granting genuineness of the signatures of the supposed Canlas spouses) did not bear
loan application, and that it did not act with bad faith. the tax account number of the spouses, as well as the Community Tax
Certificate of Angelina Canlas.
Issue: Whether or not the bank is a mortgagee in good faith
Whether the Doctrine of Last Clear Chance is applicable But such fact notwithstanding, the bank did not require the impostors to
submit additional proof of their true identity.
Ruling:
As applied in this case, in the DOCTRINE OF LAST CLEAR CHANCE
As stated by Atty Sarona from the case in toto:
The respondent bank must suffer the resulting loss. In essence, the doctrine
The efforts exerted by the bank to verify the identity of the couple posing as of last clear chance is to the effect that where both parties are negligent but
Osmundo Canlas and Angelina Canlas fell short of the responsibility of the the negligent act of one is appreciably later in point of time than that of the
bank to observe more than the diligence of a good father of a family. other, or where it is impossible to determine whose fault or negligence
brought about the occurrence of the incident, the one who had the last clear
The negligence of respondent bank was magnified by the fact that the opportunity to avoid the impending harm but failed to do so, is chargeable
previous deed of mortgage (which was used as the basis for checking the with the consequences arising therefrom.
genuineness of the signatures of the supposed Canlas spouses) did not bear
the tax account number of the spouses, as well as the Community Tax Stated differently, the rule is that the antecedent negligence of a person
Certificate of Angelina Canlas. does not preclude recovery of damages caused by the supervening
negligence of the latter, who had the last fair chance to prevent the
But such fact notwithstanding, the bank did not require the impostors to impending harm by the exercise of due diligence.
submit additional proof of their true identity.
A contract of mortgage must be constituted only by the absolute owner on
Under the doctrine of last clear chance, which is applicable here, the the property mortgaged; a mortgage, constituted by an impostor is void.
respondent bank must suffer the resulting loss. In essence, the doctrine of

` Page 9 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

The registration of a lease or mortgage, or the entry of a memorial of a lease


Considering that it was established indubitably that the contract of mortgage or mortgage on the register, is not a declaration by the state that such an
sued upon was entered into and signed by impostors who misrepresented instrument is a valid and subsisting interest in land; it is merely a declaration
themselves as the spouses Osmundo Canlas and Angelina Canlas, the Court is that the record of the title appears to be burdened with the lease or
of the ineluctible conclusion and finding that subject contract of mortgage is mortgage described, according to the priority set forth in the certificate.
a complete nullity.
The mere fact that a lease or mortgage was registered does not stop any
Atty. Sarona reviews: Again, take note of the Doctrine of Mortgagee in Good party to it from setting up that it now has no force or effect.
Faith. This does not apply when the title is in the name of the lawful or
rightful owner and the mortgagor is a person different, pretending to be the February 23 – Cabreros
owner of the property.
Recap:
EXCEPTIONS to the Doctrine of Mortgagee in Good Faith: Doctrine of a mortgagee in good faith. Take note of the general rule
and the exceptions therein. Among which, remember the diligence observed
1.Where the purchaser or mortgagee has knowledge of a defect or lack of by banking institutions, more that of a good father of a family (inaudible).
title in the vendor Now with regard to registration, again, we also have to emphasize that it is a
mere ministerial act, since again noh, the register of deeds has no discretion
2.The mortgagee does not directly deal with the registered owner of real to refuse registration on such mortgage. Moreover, registration is not a
property. or requirement for the validity of the mortgage. Even if it’s registered, it can
still be subsequently questioned if all the essential requisites for a valid
3.The mortgagee was aware of sufficient facts to induce a reasonably mortgage are not present.
prudent man to inquire into the status of a property in litigation.
Now as discussed in persons and sales. If you recall your person under
4. When the purchaser or mortgagee is a bank or financing institution, the the family code, whether it’s absolute community or conjugal partnership of
general rule that a purchaser or mortgagee of land is not required to look gains, the requirement for any disposition or encumbrance requires the
further than what appears on the face of the title does not apply. A written consent of the other spouse or the authority of the court otherwise
mortgagee-bank is expected to exercise greater care and prudence before the sale will be considered void. Notice there the phrase noh, “any
entering into a mortgage contract even those involving registered lands in its disposition or encumbrance”. So disposition, mahulog yung sale. What about
dealings than private individuals as their business is impressed with public encumbrance? It will include mortgages. So in other words, if what was
interest. involved is a conjugal property or covered by absolute community, there
must be written consent of the other spouse, otherwise the said
With regard to REGISTRATION OF MORTGAGE: encumbrance will be void. So we have the case of Ross vs. PNB.

Registration of mortgage does not to its validity. Proceedings for registration ROSS vs. PNB
do not determine validity of mortgage or its effect.
Q: Oh since what you have here is an encumbrance, what is required here
Once a mortgage has been signed in due form, the mortgagee is entitled to under the law?
its registration as a matter of right. So we have the case of A: The consent of the wife.

Q: What kind of consent? Is it required to be in writing? What was


G.R. No. L-13313 April 28, 1960 applicable here?
AGRICULTURAL CREDIT COOPERATIVE ASSOCIATION OF HINIGARAN vs. A: At that time, the Civil code was applied.
ESTANISLAO YULO YUSAY
Q: Why?
Facts: A: The mortgage took place on 1983.
Rafaela Yulo executed in favor of ‘Agricultural” a mortgage. A motion was
presented to the court by ‘Agricultural’ demanding the surrender of the Q: What is required under the civil code for a valid mortgage?
owner's duplicate certificate of title that he may annotate said mortgage at A: The husband may alienate the conjugal property with the consent of the
the back of the certificate. And register it. Estanislao Yusay, a part owner of wife
the lot, opposed the petition on the ground that he is owner of a part of the
property in question; that the granting of the motion or the registration of Q: We’re not talking about alienation here. Alienation lang ba?
the mortgage would operate to his prejudice, as he has not participated in A: And encumbrance.
the mortgage cited in the motion.
Q: What is the effect if the wife will not give her consent to such
Issue: Whether or not he registration and annotation of the mortgage passes encumbrance?
on its invalidity or effect A: It will only be voidable. Meaning it is valid until annulled.

Ruling: as discussed by Atty. Sarona Q: What are the requisites for it to be annulled..without the consent of the
No. The proceeding to register the mortgage does not purport to determine wife? When can you question it?
the supposed invalidity of the mortgage or its effect. Registration is a mere A: Within 10 years during the execution of the contract and during the
ministerial act by which a deed, contract or instrument is sought to be existence of the marriage.
inscribed in the records of the Office of the Register of Deeds and annotated
at the back of the certificate of title covering the land subject of the deed, Q: So in this instance, did the wife give her consent to the mortgage?
contract or instrument. A: No maam.

` Page 10 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Again noh, take into consideration that mortgage is regarded as an deficiency of the principal debtor as to the obligation unless of course there
encumbrance. In this case the Civil Code was applied because the is a novation wherein the subsequent purchaser, will now be the one who
encumbrance took place before the effectivity of the Family Code. The Civil will pay the principal obligation.
Code provides that the husband cannot alienate or encumber any property
without the consent express or implied of the wife. Should the husband do Article 2127. The mortgage extends to the natural accessions, to the
so, the contract is voidable. improvements, growing fruits, and the rents or income not yet received
when the obligation becomes due, and to the amount of the indemnity
Again noh, make a distinction between the civil code and the family granted or owing to the proprietor from the insurers of the property
code. In this case, do also take note that the wife or the spouse who did not mortgaged, or in virtue of expropriation for public use, with the
give consent can go to court within: declarations, amplifications and limitations established by law, whether
the estate remains in the possession of the mortgagor, or it passes into the
1.) 10 years within the execution of the contract; and hands of a third person. (1877)
2.) During the existence of the marriage.
Ok so this is another provision showing that a mortgage is inseparable
However, in this instance, the Supreme Court ruled that the documents from the property. This provision tells us what the extent of this mortgage is.
were acknowledged by the notary public and therefore there is a prima facie The mortgage extends to all its accessions, improvements, income, as well as
evidence of a valid execution thereof and cannot be disproved by the mere proceeds of insurance if the property is subsequently destroyed. It also
denial of the wife. Moreover, the petitioners also admitted in their extends to the just compensation received if it is subsequently expropriated.
memorandum that Ross forged the wife’s signature, to which Ross cannot How about the fruits? If the fruits were harvested before the obligation is
use that as a defense for the nullity of the contract because remember the due and demandable it will not be part of the mortgage that will be
spouses were who questioned and filed for the annulment of the mortgage. foreclosed. But if it is still attached to the property when the obligation
becomes due then part siya sa mortgage. To exclude the fruits, accessions,
Now, what about if the husband already died? What is the right of the etc among others there must be an express stipulation in the mortgage
wife with regard to the property? Can she mortgage the same? Under the contract. Otherwise the following are deemed included. Accrued and paid
laws on succession, she can validly mortgage, alienate, or encumber her interest etc. belonging to the mortgaged debtor installed. Also includes all
proportionate share therein. So remember this is a conjugal property. At the objects permanently attached even if placed after the execution of the
time of the death, the surviving spouse is entitled to her ½ share. To which mortgage. Now in this instance, included in the foreclosure unless otherwise
she can subject her undivided share or interest in the property, encumber it excluded.
and have it mortgaged and subsequently have it registered to bind 3rd
persons. Now do take note in these instances, without the consent of the Now we also have to distinguish this becayse 2127 tells us what is the
wife or absence of the consent of the other spouse, the status that is extent of the mortgage. Ano yung pwede iforlcose. So I think before we
affected is the accessory contract. What is considered void is only the mentioned after acquired properties, improvements subsequently attached
accessory contract that is the mortgage and not the loan. The principal to the property. So again no we apply 2127. What are the obligations
obligation/loan is still valid and standing. What is lost is the right of the covered by the mortgage. As a general rule noh an action to foreclose the
creditor to foreclose the mortgage. And in fact, the mortgage executed by mortgage must be limited to the amount mentioned therein. However, as an
the other spouse can be used as an evidence of the existence of the exception, the amount as a consideration in a contract of mortgage do no
obligation. limit the amount for which the mortgage may stand as long as there is an
intention to secure the fulfillment of future loans, advancements, and other
Article 2126. The mortgage directly and immediately subjects the property indebtedness.
upon which it is imposed, whoever the possessor may be, to the fulfillment
of the obligation for whose security it was constituted. (1876) PRODUCERS BANK vs. EXCEALSA

Okay. So again noh, a registered mortgage creates a real right. It is Facts: Excelsa applied for a credit advance with Producers which was
inseparable from the property and therefore being a real right it is supported by a letter of credit issued by Kwang Ju Bank. Producers later
enforceable against the whole world. The mortgage itself attaches to the approved the credit line. Prior to this, Excelsahad already obtained a loan
property and therefore the mortgage follows the property wherever it goes with Produces secured by a real estate mortgage over the properties of
notwithstanding any change in the ownership. The personality of the owner Excelsa. Thereafter, Excelsa presented to Producers drafts drawn under the
is disregarded and whoever acquires or subsequently acquires the property letter or credit from Kwang Ju. Producer purchased the drafts and export
carries with him the obligation to observe the mortgage of course provided documents. Producers demanded for the payment for the equivalent of the
the mortgage is registered. Subsequent purchasers must then respect the export documents they have already purchased. Excelsa was not able to pay
registered mortgage…even in the absence of registration but has personal so Producers extrajudicially foreclosed the mortgaged real properties.
knowledge of such mortgage. So there is no prohibition for the mortgagor to Excelsa argues that the REM over their properties was merely to secure the
sell his property to another person because in a mortgage again walang existing debts and not their future debts they have accumulated.
transfer of ownership. Now, if he sells it to another person and prior to the
sale, the property was mortgaged which was duly registered. If the Issue: WON the real estate mortgage also served as security for the drafts
mortgagor fails to pay his obligation, the creditor mortgagee will be entitled from Kwang Ju Bank, or future debts.
to foreclose the property and the subsequent purchaser cannot question the Ruling: Yes, there was a dragnet clause.
said foreclosure. He cannot say “hindi na yan sa mortgagor/debtor ang may The court held that dragnet clause operates as convenience to
ari” “akin na ito”. Again, as long as the mortgage was registered, the the parties so that there would be no need to execute an additional security.
subsequent purchaser must respect the mortgage to which the mortgagee is As to the validity of the foreclosure, it was held to be valid. The requirement
entitled to foreclose the same notwithstanding that the property was of publication was complied with. Xxx
already sold to another person.
PRUDENTIAL vs. ALVIAR
However, of course the subsequent buyer cannot be personally liable
for any subsequent (inaudible) Kung baga yung sa kanya lang, to the extent Facts: Spouses Alviar are the registered owners of a piece of land and they
lang nung property na nasa kanya. Hindi na siya pwede habulin for any executed a REM in favor of Prudential to secure the payment of a loan worth

` Page 11 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Php250,000. For this, they executed a promissory note secured by a REM exhaustion the properties used as collateral specifically for this separate
containing a dragnet clause. obligations. Kung kulang, and there is a deficiency that’s the time that you
can foreclose the mortgage containing the dragnet clause. So with that take
Alviar executed another promissory note signifying that it was secured by a note of the security test which was more preferred by the Supreme Court.
hold-out agreement. Another one was executed by the spouses with a clean You have a valid mortgage clause, and then subsequent loans are entered
face-out deed of assignment. The spouses paid the first loan for Php250,000 into with separate collaterals or security.
covering the first security which was secured by the REM. The bank then
moved for the extrajudicial foreclosure of the property since according to PCSO vs NEW DAGUPAN
them, the spouses had a total obligation of Php1M for their obligations
covered under the 3 promissory notes executed by the spouses. Facts: Purita Peralta is a registered owner of a parcel of land. To
secure payment for lottery tickets, she mortgaged the land. There was a
Spouses Alviar filed for a writ of preliminary injunction claiming that they stipulation that it cannot be sold during the lifetime of the mortgage.
have already paid the principal loan of Php250,000 and thus the foreclosure However, Peralta sold her property to New Dagupan. When PCSO found out
was invalid. The bank maintains that because of the dragnet clause in the about this, it caused the annotation of the mortgaged lien on the TCT of the
REM, it expressly covers not only the Php250,000 but also the 2 other property. It also applied for extrajudicial foreclosure over the land and
promissory notes. obtained a certification that the land belonged to it. New Dagupan filed for
the annulment of TCT in the name of PCSO and contended that it was a
Issue: WON the dragnet clause applies even in the subsequent advancement buyer in good faith. PCSO argues that it had the authority to foreclose the
for which other securities were intended property in lieu of the unpaid tickets obtained by Galang.

Ruling: The dragnet clause will not be applied using the reliance on security Issue: WON there was a dragnet clause in the REM
test. The parties having conformed to the blanket mortgage clause or Ruling: No. It is clear in the mortgage executed that it only
dragnet clause, it is reasonable to conclude that they also agreed to an covered the Php450,000 amount of the tickets obtained by Galang. It was
implied understanding that subsequent loans need not be secured by other found in the records that this was already paid by Galang, as supported also
securities, as the subsequent loans will be secured by the first mortgage. by testimonies of the PCSO officers. This means that the mortgaged property
no longer covers as security for future debts that may incurred by Galang.
In other words, the sufficiency of the first security is a corollary component
of the dragnet clause. But of course, there is no prohibition, as in the
mortgage contract in issue, against contractually requiring other securities Q: What provision was considered by the court in stating that there was no
for the subsequent loans. Thus, when the mortgagor takes another loan for dragnet clause but covered a specific obligation?
which another security was given it could not be inferred that such loan was A: That part where “Upon the full payment of the tickets, they will be
made in reliance solely on the original security with the dragnet clause, but discharged from their obligation” The use of the terms “outstanding”
rather, on the new security given. “unpaid” militate against PCSO’s claim that future ticket purchases are also
secured. The ambiguity and the phrase after each draw and other provisions
which mention with particularity the amount 450,000 php outstanding
Q: Did the Supreme Court say that the dragnet clause will not apply to balance secured by the subject mortgage should be construed against PCSO.
subsequent securities? What is the exception? Isn’t it that the Supreme Anent the issue regarding the cancellation that was argued by PCSO, the
Court discussed 2 schools of thought? Which one did the Supreme Court court ruled also that there was no need for the cancellation of the said
hold as controlling? mortgage because at that time it was registered, there was no mortgage to
A: The Supreme Court relied on the Security Test. speak of. It was already terminated when they paid the 450,000 php.

Q: What is this test? Q: Alright. So with that who has a better right over the property?
A: According to this test maam, the parties conform to a certain dragnet A: New Dagupan has a better right.
clause which implies an understanding that subsequent loans need not be
secured by other securities. The subsequent loans would be secured by the So first we take into consideration. Did the mortgage contract here executed
first mortgage covered by the dragnet clause. However, there was no in favor of PCSO cover future obligations? The Supreme Court said there’s no
prohibition for them to secure the subsequent loans with other securities. dragnet clause here. The use of the terms outstanding and unpaid again
militate against the claim that future purchases are likewise construed. And
Q: So does that mean that it will not be covered by the dragnet clause since this was also a contract of adhesion, it was really construed against
because it was covered by separate securities? PCSO. So with that, since there was already full payment of the obligation in
A: The Supreme Court did not say that it will not be applicable to subsequent that real estate mortgage contract, it did not cover subsequent obligations of
loans secured by different properties. The SC further held that the party Peralta in favor of PCSO.
must first exhaust the corresponding securities and if such security is
insufficient, then that is the time that dragnet clause will be used as a Now with regard to registration, again noh, do take note that PCSO also did
defense to foreclose the property. not mortgage the said property until thereafter. It was only on May 20 1992
that PCSO registered its mortgage and the at that time New Dagupan had
Okay. So take note of the 2 schools of thought that were discussed already purchased said property under a conditional sale. So here, New
here by the Supreme Court. Again, what are the facts here? There was Dagupan was considered as a purchaser in good faith and therefore had a
initially a real estate mortgage containing a blanket mortgage clause. The better right that PCSO.
Supreme Court upheld its validity and existence. Subsequent to that
mortgage contract, there subsequent contracts and securities entered into So again noh take note of the purpose of the dragnet clause also known as
like hold out agreements, different deeds of assignment, chattel mortgage. blanket mortgage clause provides continuing dealings avoiding the expense
The Supreme Court here discussed, that such dragnet clause may still apply and inconvenience of executing new security of each new transaction. It is
to subsequent loans even if they are secured by different properties. specifically phrased to subsume all debts from the past and future. This is
However, as mentioned, the Supreme Court emphasized na before habulin actually similar to continuing guaranty or continuing suretyship. For its
yung mortgage contract under the dragnet clause, there must first be

` Page 12 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

interpretation, it is strictly construed and carefully scrutinized more so if loan, the debtor in that instance failed to pay his obligation, the mortgage
what you have is a contract of adhesion prepared by the mortgagee. covering the first loan was foreclosed. And when the property was thereafter
sold, nag bayad ng redemption price, notwithstanding that by virtue of the
ASIA TRUST V. CARMELO TUBLE forclosure the REM was extinguished because that foreclosure had the
purpose of extinguishing the principal obligation. So accessory follows the
FACTS: Carmelo Tube, who served as the vice president of principal. With the extinguishment of the mortgage, wala na rin yung
Asiatrust Development Bank, availedhimself of the car incentive plan and dragnet clause which could have covered the consumption loan. With the
loan privileges offered by the bank. The arrangement was made to appear as the consumption loan or the same property cannot again answer for the
a lease agreement requiringonly the payment of monthly rentals. obligation in a subsequent consumption loan.
Accordingly, the lease would be terminated in case of employee’s
resignation or retirement prior to full payment of the price. Meanwhile, as In foreclosure, the mortgaged property is subjected to the proceedings
for theloans, he obtained 3 separate loans. for the satisfaction of the obligation. The mortgage was extinguished with
the foreclosure and sale of the mortgaged property and what remains is the
The first loan involved a real estate mortgage loan evidenced by a right of redemption provided by law. Since the mortgaged contract is already
promissory note 0142. The second loan was a consumption loan (P/N 0143) extinguished, the bank can no longer rely on its provisions even if it included
and the third loan a salary loan. When he resigned, he was given the option the dragnet clause. The bank cannot refer to the % on interest which was
to either return the vehicle without any further obligation or retain the unit allegedly covered by the terms of the contract. Neither can the bank use the
and pay its remaining book value. His obligations, aside from the purchase or consummated contract on the rest of the obligations which are not included
return of the vehicle, are the Php100,000.00 as consumption loan, when there was a foreclosure proceeding. It cannot be allowed to use the
Php421,800.00 as real estate loan and Php16,250 as salary loan. same security to collect from the other loans for to do so would be akin to
foreclosure of an already foreclosed property. Rather than relying on an
On the other hand, the petitioner owed Tuble hispro-rata share in expired contract, the bank should have collected on the excluded loans by
the DIP, which was to be issued after the bank had given the resigned instituting the proper actions by action to recover sums of money. Petitioner
employee’s clearance, and Php25,797.35 representing his final salary and should have ran after Tuble separately instead of the property used to
corresponding 13thmonth pay. secure the debts. The bank here cannot alter that right by imposing
additional charges and the power to decide whether or not to foreclose is
Tuble claimed that since he and the bank were debtors and also the prerogative of the mortgagee. But one a decision is made, which is
creditors of each other, theoffsetting of loans could legally take place. to have the property mortgaged foreclosed, the act shall be governed by
However, the bank sent him a demand letter obliging him to pay his debts mortgage laws.
and to return the vehicle. As for the real estate loan, a petition for extra-
judicial foreclosure was filed but was redeemed by Tuble for The dragnet clause does not justify the imposition of the 80% interest
Php1,318,401.91. After payment of such amount, Tuble questioned how the but in this instance there was no specific mention of interest to be added in
foreclosure basis of Php421,800.00 ballooned to Php1,318,401.91 in a case of either default or redemption. Also take note again the Supreme
matter of 1 year. Court discussed the reliance on the security test.

ISSUE/S: ARTICLE 2128. The mortgage credit may be alienated or assigned to a third
1. W/N Asiatrust should recover the other obligations of Tuble to person, in whole or in part, with the formalities required by law. (1878)
the real estate mortgage.
2. W/N Asiatrust is justified in reposing the 18% annual interest of So the subject in this article is the mortgaged credit. The right of the
the redemption price by way of the dragnet clause. mortgagee itself over the property may be alienated or assigned to a 3rd
person in whole or in part.
HELD: In Spouses Romero v. Court of Appeals, SC held that the
mortgage indebtedness was extinguished with the foreclosure and sale of If the creditor mortgagee assigns his right to a 3rd person what is the effect?
the mortgaged property, and that what remained was the right of It transfers his right to a 3rd person. If the debtor fails to pay when the
redemption granted by law. obligation it due, the assignee can foreclose the property subject of the
mortgage. Do remember here that alienation or transfer of the mortgaged
Consequently, since the Real Estate Mortgage Contract is already credit is valid even if it is not registered.
extinguished, petitioner can no longer rely on it or invoke its provisions,
including the dragnet clause stipulated therein. It follows that the bank Now how about the mortgaged property itself? Can the mortgagor alienate
cannot refer to the 18% annual interest charged in Promissory Note No. the same? Can he sell it? Yes. We have seen that in the cases because again
0143, an obligation allegedly covered by the terms of the Contract. in a mortgage there is no transfer of ownership, in fact as we will see later on,
a stipulation saying that upon non-payment the property will be
Neither can the bank use the consummated contract to collect on automatically forfeited in favor of the mortgagee is Void. Moreover, as we
the rest of the obligations, which were not included when it earlier instituted will see later, a stipulation which prohibits a mortgagor from transferring
the foreclosure proceedings. It cannot be allowed to use the same security property to another person would also be considered void.
to collect on the other loans. To do so would be akin to foreclosing an
already foreclosed property. VEGA vs. SSS

FACTS: Magdalena Reyes owned a piece of titled land. On August 17, 1979,
Q: So with that we have a valid mortgage with dragnet clause? she got a housing loan from SSS for which she mortgaged her land. Late
A: Yes. Issue is won they may still use the same security in order to cover the 1979, Reyes asked the Sps. Vega to assume the loan and buy her house and
other loans. lot since she was to emigrate. An employee at SSS said, however, that SSS
did not approve of members transferring their mortgaged homes.
So here, first there was a loan. With the mortgage containing the
dragnet clause and the dragnet clause is valid. Subsequent to that other But the Sps Vega (Vegas) could make a private arrangement with Reyes
loans were entered into such as the construction loan. Now with the first provided that they pay the monthly amortizations on time. Vegas agreed for

` Page 13 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Reyes to execute in their favor a deed of assignment of real property with will pay the first mortgagee so that he would now be the preferred
assumption of mortgage and paid Reyes P20,000 after she undertook to mortgagor.
update the amortizations before leaving the country. The Vegas took
possession of the house in January 1981. Reyes did not execute the deed of Remember the second mortgage is still valid although it does not usually
assignment. happen that often because the mortgagee will hesitate to have a property
that has already been previously mortgaged. Pero pa rin siya and being a
She left the country and left her sister (Julieta Ofilada) a special power of mortgagee, he will be considered as one having an interest to the obligation
attorney to convey ownership of property. Sometime between 1983 and to which he can force the creditor to accept the payment.
1984, Ofilada executed the deed of assignment in favor of the Vegas, kept
the original and gave the Vegas two copies, one to be given to the Home Now Art. 2130, a stipulation forbidding the owner from the selling the
Development Mortgage Fund and kept the other. A storm in 1984 resulted in property shall be void. Any agreement with regard to the right to first refusal
flood and destroyed their personal copy. is valid. If the mortgagor would want to sell the property, and then there is
an agreement with the mortgagee that if he decides to do so he may first
ISSUE/S: Whether Reyes validly sold her SSS mortgaged property to the offer it to the creditor-mortgagee, then such is considered as a valid
Vegas given a provision in the mortgage agreement that she could not do so stipulation and that is not contrary to Art. 2130.
without the written consent of SSS.
Now, we have also emphasized last time that the registration of the
HELD: Yes. The Vegas were able to present adequate proof of Reye’s sale of mortgage is required to bind third persons. Such registration serves as a
the property to them. The Vegas proved the loss of the deed of assignment constructive notice to the whole world and as a General Rule he is not
in their favor and what it contained, they offered strong corroboration of the obliged to look beyond the title. Of course we have to take note of the
fact of Reyes’ sale of the property to them. They took possession of the exceptions. If the same is not registered, the mortgage can nevertheless
house and lot after they bought it. become valid between the parties but not as against third person.

They also paid for the amortizations to the SSS. And when SSS wanted to It is also possible that mortgages are not registered but third persons would
foreclose the property, the Vegas sent a manager’s check for the balance of still be bound by such mortgage if they have actual knowledge. Now we have
the loan. Article 1237 of the Civil Code cannot apply in this case since the the case of Pineda.
debtor (Reyes) consented to the transfer of ownership of the mortgaged
property to the Vegas. Pineda vs CA, GR 114172, August 25, 2003
Reporter: Suico
Although Paragraph 4 of the mortgage agreement which states that Reyes
must secure the consent of SSS before selling the property, is valid and Facts (from cdasia): On 4 January 1982, the Spouses Virgilio and Adorita
binding in the sense that SSS cannot be compelled to recognize the sale Benitez mortgaged a house and lotcovered by TCT 8361 in favor of Juanita P.
before the loan is completely paid, it does not absolutely forbid her, as Pineda and Leila P. Sayoc. Spouses Benitez delivered TCT 8361 to Pineda, but
owner, from selling the property while the loan remained unpaid. Such did not register the said mortgage with the Register of Deeds. Later, with the
stipulation is against public policy, being an undue impediment or consent of Pineda, Spouses Benitez sold the houseto Olivia G. Mojica. Mojica,
interference on the transmission of property. in turn, filed a petition for the issuance of a second owner's duplicate of TCT
8361 by alleging that it was lost. Thus, the trial court granted the petition.
Article 2129 of the Civil Code gives SSS the option of collecting from the third
person in possession of the mortgaged property. On 12 December 1983, spouses Benitez sold the lotcovered by TCT 8361 to
Mojica, and TCT 13138 in replacement of TCT 8361 was issued in the name
of Mojica. On 22 February 1985, Mojica mortgaged the said property to
So you take note of this case because this is very common with regard Teresita A. Gonzales. The latter caused the annotation of said mortgage on
to financial institutions like those persons who borrow from pag-ibig or sss TCT 13138. On 8 May 1985, Pineda and Sayoc filed a complaint for the
then they execute a REM in favor of said institutions however later on it cancellation of the second owner's duplicate of TCT 8361. On 18 August 1986,
turns out di pala nila kaya bayaran. So what they do is that they enter into a they caused an annotation of notice of lis pendens on the original of TCT
contract of sale with the assumption of mortgage in favor of a 3rd person, 8361 with the Register of Deeds. Thereafter, the trial court rendered
which is what happened in this case. Now, notice also here that there was a judgment declaring the second owner's duplicate of TCT 8361 as null and
provision in the mortgage contract that consent of sss (mortgagee) was void.
required for the sale thereof. This cannot be interpreted as absolutely.
Meanwhile, Mojica defaulted in paying her obligation to Gonzales, hence,
February 28 – Nitura
the latter extrajudicially foreclosed the mortgage, purchased the said
property at public auction, and for failure of Mojica to redeem, consolidated
REVIEW: We already discussed Article 2130.
its title. Consequently, the Register of Deeds cancelled TCT 13138 and issued
TCT 16084 in the name of Gonzales. On appeal, the Court of Appeals
Article 2130. A stipulation forbidding the owner from alienating the affirmed the trial court's decision. However, the writ of execution was
immovable mortgaged shall be void. (n) returned unsatisfied since the Register of Deeds had already cancelled TCT
8361 and issued TCT 16084 in the name of Gonzales. Later, the trial court
Any stipulation forbidding the owner from alienating the mortgaged issued an order declaring void the original and the owner's duplicate of TCT
property will be void. We have emphasized this in the case of SSS vs. Vega, a 16084 in the name of Gonzales. When Gonzales raised this issue to the Court
stipulation requiring the consent will circumvent what is required in Art. of Appeals, the appellate court declared the said order of the trial court as
2130 to which, in effect, nevertheless the said sale will be valid as held in the null and void. Hence, this petition.
case of Vega vs SSS.
Issue1: WON Pineda can still validly sell the subject property in favor of
Now also, we have pointed out a second mortgagor is entitled to purchase Mojica considering that it was mortgaged. YES
the property or pay the first mortgagee for the release of the first mortgage.
Usually, the second mortgagee, if he is really interested with the property

` Page 14 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Held1: SC said that Spouses Pineda still have the right to sell the property the title over the property. Title in favor of Mojica was validly transferred by
since a mortgage is simply an encumbrance on the property. It is still the virtue of the execution of the deed of sale as Certificate of Title is not
spouses Pineda who are the owners of the property equivalent to title itself. So there was a valid transfer of ownership to Mojica
to which since Mojica is the owner, she can now validly mortgage the
Issue2: Can Gonzales be considered a purchaser in good faith? YES. property in favor of Gonzales.

The prior mortgage in favor of Pineda and Sayoc did not prevent the spouses
Held2: SC said that Gonzales is a purchaser in good faith because Gonzales Benitez to sell the property to Mojica because a mortgage is merely an
does not have any knowledge of the mortgage and also that the said encumbrance and thus will not extinguish the title of a debtor who does not
mortgage was not registered. Since it was not registered, it cannot bind 3rd lose his principal attribute as the owner. Pointing out Art. 2130, the law even
persons as registration is required to bind third persons. considers void a stipulation prohibiting the owner from selling the
mortgaged immovable. However, the nullity of the second owner’s title did
Q: But isn’t it that the title that was issued by Mojica was declared void by not affect the validity of the sale between Benitez and Mojica. The rule is
the court? that a mortgage annotated in a void title is valid.
A: Yes, ma’am.
So the mortgage is valid if it was registered in good faith. Gonzales registered
Q: Why was it declared void? the mortgage in good faith as he had no knowledge of the previous
A: Because in acquiring the title, Mojica presented the second owner’s mortgage in favor of Pineda and Sayoc considering that the same was not
duplicate copy which… ≠ registered. To bind third parties to an unregistered encumbrance, the law
requires valid notice. In this instance, no registration, no actual notice.
Q: Again again now, why is it considered void? Why is the title in favor of
Mojica wherein the same title was presented to Gonzales for the Mortgage When Gonzales purchased the property in the action sale, Pineda already
considered void? annotated the lis pendens. However, the mortgage was validly registered
A: It is void ma’am because in acquiring the same TCT, Mojica presented the prior to the annotation of the lis pendens. Pineda and Sayoc were considered
deed of sale and the second owner’s duplicate copy which Mojica acquired negligent in not registering their mortgage. Gonzales on the other diligently
through fraud. exercised her right to foreclose the property. The unregistered mortgage of
Pineda and Sayoc was extinguished upon foreclosure of Gonzales’ mortgage.
Q: What was the allegation regarding the second owner’s duplicate title, it
was in the name of? Even assuming assuming for the sake of argument that the latter mortgage
A: In the name of Spouses Pinedas, ma’am. was unregistered. Between two unregistered mortgagees both being in good
faith, the first to foreclose mortgage prevails over the other. Of course while
Q: How did Mojica acquire the said title? Pineda and Sayoc cannot foreclose the property anymore, the mortgage is
A: On February 9 mam, when the lot was sold to him, Mojica alleged that the deemed extinguished, the principal obligation still exists to which said Pineda
owner’s duplicate of title was delivered to him. However, in acquiring the and Sayoc can still go after Benitez for the unpaid principal obligation. The
second owner’s duplicate, Mojica alleged that it was lost. TCT issued in the name of Gonzales is considered as valid.

Q: Where is the title? So again registration is required to bind third persons. With regard to the
A: It was with Pineda and Sayoc, Ma’am. sale, it is valid despite the mortgage even if the mortgage was registered and
the sale was not registered. But if the sale is registered, the subsequent
Q: What is the effect of the void title in relation to the sale in favor of purchaser must the sale. And what if the effect if the property is
Mojica? subsequently foreclosed? If it is registered, the property will be foreclosed
A: The SC held that the nullity of the said title does not affect the validity of and the mortgagee will have a better right over the subsequent purchaser
the sale in favor of Mojica since there was an execution of a deed of sale but of course the purchaser cannot be held be held liable for any further
which serves as an actual or physical delivery in favor of Mojica so there is a deficiency.
transfer of ownership.
With regard to dragnet clause which we discussed last time and with the
Q: Now since the title was void and the mortgage of Gonzales was dragnet clause, we have a mortgage which can cover future obligations
registered in the said void title, did it not affect the mortgage in favor or which must be clearly stipulated in the Real Estate Mortgage (REM). Do not
Gonzales? confuse dragnet clause from after acquired properties. Dragnet clause, and
A: The SC held ma’am that the annotation of the mortgage on the void title scope niyan, future obligations with the same property mortgaged, but it can
does not mean that the mortgage was also void but to be considered as a cover past and future obligations. With regard to after acquired properties,
valid mortgage… the annotation of the mortgage was considered an ang scope ng mortgage, ano ang pwedeng I-foreclose ng mortgage?
annotation in good faith.
General Rule: After acquired properties cannot be mortgaged because the
Atty. Jazzie: So here, take note, Benitez mortgaged the property in favor of requirement is that at the time of the mortgage, you must be the absolute
Pineda and Sayoc and title was delivered to Pineda. Thereafter, Benitez sold owner thereof. You cannot execute a REM that any property that I own from
the property to Mojica. The sale is valid because the mortgage was merely this day forward will be and can be used as a security for my obligation to
an encumbrance and it does not divest the mortgagor to sell the property. you. Hindi pwede. You must specify the property.
Now do take note that the mortgage in favor of Pineda and Sayoc was not Exception: However, if what you have as your mortgage are inventories, that
registered. So when Mojica applied for the issuance of a new title in favor of could be a valid subject matter for mortgage wherein the inventory will be
the alleged lost one, but actually hindi naman siya nawala, the new title that replenished from time to time. But these are chattel mortgage kasi personal
was issued was actually void because the court had no jurisdiction to issue property man siya. So at the time that you executed the mortgage, siyempre
the said title because the title was not actually lost. iba man ‘yung inventories mo. When the time it was already due and
demandable, nabenta na ‘yung stocks at the time that the mortgage was
Notwithstanding such fact, SC emphasized that the sale is nevertheless valid executed but nevertheless, if is provided that the inventory will cover
because you also have to consider that what is void is only the TCT and not

` Page 15 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

whatever you have in your store, that would be considered valid under after The Spouses Rosales filed a motion for reconsideration of the trial court's
acquired properties. orders, but were denied. The CA dismissed their petition for certiorari for
lack of merit, holding that there is no right of redemption in case of judicial
And we have also discussed last time, what is the extent. ‘di ba fruits, foreclosure of mortgage. Hence, this petition for review.
improvements among others. Let’s have Article 2131.
Issue: WON Spouses Rosales can still redeem the property even through this
Article 2131. The form, extent and consequences of a mortgage, both as to was a judicial foreclosure. NO.
its constitution, modification and extinguishment, and as to other matters
not included in this Chapter, shall be governed by the provisions of the
Held: In denying the petition, thereby affirming the CA decision on appeal,
Mortgage Law and of the Land Registration Law.
the Supreme Court ruled that since the parties' transaction is an equitable
mortgage and the trial court ordered its foreclosure, execution of judgment
You may have notice that there are only few Civil Code provisions with is governed by Sections 2 and 3, Rule 68 of the 1997 Rules of Civil Procedure,
respect to REM. So, with regard to extrajudicial foreclosure, we have a as amended. There is no right of redemption in case of a judicial foreclosure
special law, Act. 3135. We also have the General Banking Law of 2000. We of a mortgage.
could also apply the Land Registration Law and with regard to judicial
foreclosure, we have Rule 68 of the Rules of Court. The only exemption is when the mortgagee is the Phil. National Bank or a
bank or a banking institution. Since the mortgagee in this case is not one of
Now what happens if the debtor fails to pay his obligation? those mentioned, no right of redemption exists in favor of petitioners. They
merely have an equity of redemption which is their right, as mortgagor, to
The creditor of mortgagee has two rights: extinguish the mortgage and retain ownership of the property by paying the
1. He can foreclose the property; or secured debt prior to the confirmation of the foreclosure sale. Petitioners, in
2. He can file a collection for sum of money. this case, failed to exercise this equity of redemption.
Now these remedies are alternative in nature. Of course the
foreclosure may be extrajudicial or judicial depending on the circumstances
of each case. But once he chooses foreclosure, he cannot file an action for Q: What is the difference between right of redemption and equity of
collection of sum of money because again these are alternative in nature. redemption? What happens in right of redemption?
Otherwise if may collection and foreclosure, applying your civil procedure, A: In right of redemption ma’am, there is already a foreclosure which has
you can file a motion to dismiss for splitting the cause of action. been held. However in equity of redemption, the original owners can only
take their property again if they exercise this right before the confirmation of
So with that, we have foreclosure. Foreclosure is a remedy available to the the foreclosure sale… ≠
mortgagee by which he subjects the mortgaged property to the satisfaction
of the obligation to secure which the mortgage has given (sic). Mortgage Q: Only before the confirmation? What is the period provided under Rule
may be foreclosed only when the debt remains unpaid at the time it is due. 68?
Do take note that foreclosure proceedings have in their favor the A: 90 days ma’am after the judgment becomes final.
presumption of regularity and the burden of evidence to rebut the same is
within the party that seeks to challenge the said proceedings. Q: How is it different from right of redemption?
A: In right of redemption, the original owners may redeem the property even
We have two (2) kinds of foreclosure: after foreclosure for a 1 year period.
1. Judicial Foreclosure - is a foreclosure filed before the court and is
governed by Rule 68 of Special Civil Actions. Q: What about the exemption that you mentioned? What is that?
2. Extrajudicial Foreclosure - we will take more of extrajudicial foreclosure A: The only exemption is when the mortgagee is the PNB or a bank or ≠
under Act 3135. This foreclosure is done without the aid of the court.
Meaning walang hearing at judge, this is through the clerk of court or the Q: That is an exemption with regard to what type of foreclosure?
sheriff. A: Judicial foreclosure ma’am.

However, let us take into consideration judicial foreclosure so that we can be Atty. Jazzie: Under judicial foreclosure,
able to distinguish it from extrajudicial foreclosure. Under judicial General Rule: Equity of Redemption
foreclosure we have Rule 68. What is important and what I want you to take Exception as provided in the General Banking Law: When the mortgagee is a
note in judicial foreclosure is what we have there which is what we call bank or a banking institution
Equity of Redemption. We have have the case of Spouses Rosales.
What do we mean by Equity of Redemption? After the entry of judgment of
foreclosure wherein you file a petition for foreclosure before the court and
Spouses Rosales vs Spouses Suba, GR 137792, August 12, 2003
now the court says that the foreclosure is proper, the order becomes final
Reporter: Campaner
and there is now an entry of judgment. Under Rule 68, Redeem but not less
than 90 days but more than 120 days from the entry of judgment, mortgagor
Facts: There was this final decision by the RTC of Manila which required the
or debtor is ordered by the court to pay the obligation, interests and
Spouses Rosales to deposit to the Clerk of Court payment to Macaspac. From
expenses incurred.
Cdasia Synopsis - After the petitioners-judgment debtors failed to pay the
judgment debt, the trial court issued a writ of execution ordering the sale of
Under Section 2 of Rule 68, Even if the rule says not more than 120 days, you
the property subject of litigation for the satisfaction of the judgment. The
may still exercise this equity of redemption as long as the sale is not yet
property was sold at public auction and the Spouses Suba were the highest
confirmed. That would also mean that if you have judicial foreclosure is
bidders. The trial court issued an order confirming the sale of the property to
available. When you say right of redemption, the redemption period is 1 year.
the Spouses Suba and subsequently granted respondent's prayer for a writ of
In judicial foreclosure after the sale has been confirmed, the mortgagor
possession.
cannot anymore redeem the property. The exemption is provided in the
General Banking law wherein the mortgagee is a bank, then the mortgagor
has a right of redemption - the one year redemption period.

` Page 16 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

slight deviations specially with regard to fees pero with regard to the more
So in this case of Sps. Rosales, it was a judicial foreclosure after the court important provisions, it is the same.
upheld that the mortgage was an equitable one. When the foreclosure is
judicially effected, no equivalent right of redemption exists. No such right is How does extrajudicial foreclosure take place? Of course the mortgagor
recognized in a judicial foreclosure except only when the mortgagee is the would have to execute a deed of real estate mortgage (REM). For an
PNB or a bank or a banking institution. extrajudicial foreclosure to be availed of by the mortgagee, the mortgage
contract must contain an authorization by the mortgagor given to the
The right of redemption is not recognized in a judicial foreclosure. The right mortgagee to extrajudicially foreclose the property. So the Deed of REM
of the defendant mortgagor to extinguish the mortgage and retain must contain a special power authorizing the mortgagee, that in case the
ownership is by paying the secured debt within the 90-day period after the obligation is not paid, the property will be sold and the proceeds will be
judgment becomes final or even after the foreclosure sale but prior to its applied to pay for the obligation. Now this is very important because if you
confirmation. This is the mortgagors equity not right of redemption which executed a REM and it does not contain this authority, this clause or this
may be exercised by him even beyond the 90-day period from date of the special power given to the mortgagee, then you cannot extrajudicially
service of order even after foreclosure sale provided again it is before the foreclose the property. So what is the remedy of the creditor? Judicial
order of confirmation. foreclosure or mag-file siya ng collection for sum of money.

In this instance they only had an equity of redemption. It is simply their right This would also be relevant in the sense that extrajudicial foreclosure
to extinguish the mortgage and retain ownership by paying the secured proceeding is faster kasi hindi ka magdaan ng hearing, hindi ka magdaan ng
obligation prior to the confirmation of the sale. However, instead of court. Simply file a petition in the office of the Clerk of Court and the sheriff.
exercising this equity of redemption, petitioners chose to delay the Walang hearing but you have to comply with the requirements of notice of
proceedings by filing several manifestations (?) in the court. So take note of sale and publication, public action takes place. Ganun lang. Mas mabilis siya.
the General Banking Law which provides for the exception - 1 year And, it does not require lawyers. So lesser fees, no more filing fees and faster
redemption period as long as the mortgagee is a banking institution. time to the advantage of the creditor-mortgagee.

So essentially, what happens in a judicial foreclosure? You file an Do remember that this authorization is essentially an agency wherein the
action/petition with the court. Court ito ha which has jurisdiction over the mortgagor is the principal and the mortgagee is the agent. Under the rules of
location of the subject matter. Court can order the payment within the 90- agency, the general rule is that when the principal dies, the agency is
120 days. In the meantime, tatakbo na ang equity of redemption. If no extinguished. So what happens if the obligation has already become due and
payment, the court orders the sale of the subject matter to the highest demandable but the at time of the application for foreclosure, namatay na si
bidder after which the parties will be called for a confirmation of the sale. mortgagor, will that be ground to question the REM? Hindi. No such
Now once there has been a confirmation of the sale, the mortgagor cannot extinguishment because the power given to the mortgagee to foreclose the
anymore enforce or demand that his payment be received. property covered by the REM is for the benefit of the mortgagee. It is not for
the interest of the mortgagor but rather the mortgagee. So notwithstanding
Now, in this instance of judicial foreclosure, there is a hearing for the the death of the mortgagor or debtor, the mortgagee may still extrajudicially
confirmation of the sale. Why is that required? So that the mortgagor has foreclose the property wherein the agency or authorization given therein is
the opportunity to assail the validity of the action sale. So again, in judicial not extinguished for this is considered to be an agency coupled with interest.
foreclosure, it is possible that even after the sale, equity of redemption is
available as long as there is no confirmation. If you want to exercise this Now sabi natin, what is available in judicial foreclosure is equity of
Equity of Redemption, you have to pay the amount of the debt/obligation an redemption as a general rule. But what about extra judicial foreclosure? We
not the purchase price. have the right of redemption. Naferteri, what happened in the case of
Spouses Landrito?
Who can redeem? Under the the Rules of Court:
1. The mortgagor or one who is in privity of title with the mortgagor Spouses Landrito vs CA, GR 133079, August 9, 2005
2. The successors-in-interest; it could be Reporter: Kuit
a) The person whom which the debtor has transferred his right
b) The person whom the debtor conveyed his interest for the Facts: Spouses Landrito obtained a loan of P350,000 from Carmencita San
subject matter Diego. To secure such loan, they executed a REM in favor of San Diego.
c) The one who succeeds to interest of the debtor Sometime thereafter, they made several payments, however it was not yet
d) The joint debtors or joint owners of the subject matter complete. A subsequent loan was made by spouses Landrito, this time
e) Compulsory heirs amounting to P1,000,000. To secure the payment of the loan, they executed
an amended REM stipulating that the loan be paid within 6 months from
What happens if there is a deficiency? If the property was judicially Sept. 16, 1991 and if not paid within the said period, the mortgagee will have
foreclosed and sold but nevertheless the proceeds are not sufficient to pay the right to declare the debt to and immediately foreclose the REM either
the obligation. judicially or extrajudicially in accordance with law.
- The creditor can still recover within 10 years (the prescriptive period
under the Civil Code from the time right of action accrues.) He may It appears here that the Sps. Landrito defaulted in payment and despite the
recover even within the period of Equity of Redemption. He may notice sent by San Diego, they still failed to pay which prompted San Diego
also pray that the deficiency judgment be incorporated in the to send a final notice of demand. Now this time the obligation already
judicial foreclosure. Just take note of that because you will discuss amounted to P1.9M and they still failed to pay which prompted Carmencita
more on Judicial Foreclosure in your Special Civil Action. to file an extrajudicial foreclosure of the property which they used to acquire
the said loan.
Now let us take into consideration extrajudicial foreclosure under Act 3135.
As I mentioned, if you have the book by de Leon, you have copy at the Subsequenty, the sheriff sent several notices to the parties announcing the
appendix. Otherwise you should have a copy of this special law. It is an old sale. On August 11, 1993, the date of sale, the Sps. Landrito did not attend
law but this is still the same law that is applied today but of course there are the foreclosure sale and a certificate of sale was given to San Diego being the
highest bidder. The amount of the property became P2M.

` Page 17 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

What you need to take note of here, huwag I-partner ang dalawang E. Kapag
On October 29, 1993, San Diego registered the Certificate of the Sale after extrajudicial, Right. Kapag judicial, Equity of Redemption. Ang right of
that within the 1 year redemption period, still the Spouses Ladrito failed to redemption under Act 3135, ang nakalagay diyan date of sale. But
redeem the said property. Instead On November 1994, the spouses sought jurisprudence has been consistent that the one year period shall start from
for the annulment to the said foreclosure sale. They allege that it was null the registration of the sheriff’s certificate of sale. Act 3135 says “1 year from
and void because it failed to comply with the requirement of Act 3135 of the and after the date of sale” which should be interpreted from the time the
publication and notice and that the foreclosure should have been limited to certificate of sale is registered.
the amount of the debt. In this case, it should only have been 1M but the
sale already amounted to P1.95M. In this instance, there was no sufficient evidence that redemption was made
or that there was an extension. Even if there was, you cannot circumvent the
The husband of San Diego gave the Spouses Landrito an extension which right of redemption available under Act 3135. When the period allowed to
allowed them to pay the obligation until November 11, 1994. Spouses San redeem will lapse, the action to enforce redemption will not prosper
Diego here sought for the dismissal of the case which was granted by the anymore even if the action is brought within the prescriptive period.
RTC and upheld by the CA.
Period of redemption is not a prescriptive period but a condition precedent
Issue: Can Spouses Landrito still redeem the property? NO. provided by law to restrict the right of the person exercising the redemption.
If the person exercising this right has offered to redeem the property within
Held: SC held that Spouses Landrito can no longer redeem the property the period fixed, he is considered to have complied with this condition.
because as found by the CA, even if the amount of the foreclosure sale
should be limited to the amount of the debt secured by the REM, because of Moreover, the period is not suspended by the institution of an action to
the several notice and the publication, they still failed to raise a question or foreclose/annul the foreclosure sale. Petitioner have lost any right or
attend the foreclosure sale… ≠ interest over the subject property primarily because of their failure to
redeem the same in the manner and within the period prescribed by law.
Just take note the general rule on the right of redemption, if you want to
Q: What time is the redemption period counted? redeem the property, pay the mortgagee this time the purchase price plus
A: From October 29, 1993 because it was the registry of the sale. expenses and interest incurred. Again from the date of the confirmation of
sale ang 1 year period.
Q: Was there sufficient evidence showing that indeed there was an
extension given to the petitioners in this case? Do take note that of the exception under the general banking law wherein
A: No, ma’am. even if the mortgagee is a bank, if the mortgagor is juridical entity, such as a
corporation, the 1 year period does not apply. Under section 47, juridical
Q: Assuming that there was an agreement for an extension, will it stop the persons whose properties are sold can redeem until the registration of
running of the one year redemption period? foreclosure or 3 months after the foreclosure whichever is earlier. You take
A: It will not stop the one year redemption period ma’am. note of that ha which is under the General Banking Law. This is sometimes
referred to as equity of redemption, but this is different from the equity of
Q: Why not? Because this is provided under the law. With regard to the redemption under Rule 68.
period of redemption, it must be 1 year from the date of?
A. The registration ma’am. March 2 – Pastor

Q: In this instance was there are offer to pay or redeem on the part of The general rule for judicial foreclosure is equity of redemption. The period
Spouses Landrito? as provided in Rule 68, however as an exception, if the mortgagee is a bank
A: According to the the SC, Spouses Landrito never exercised their right to or a banking institution, we have the 1 year right of redemption counted
redeem the property. from the date of registration. For extrajudicial foreclosure, the general rule is
that there is right of redemption and the one year period is counted from
Q: What about any action filed for the annulment of the foreclosure the registration of the sale. So between the two, in extrajudicial foreclosure,
proceeding would it stop the one year redemption period? you have lesser expenses and it is easier than judicial foreclosure.
A: No, ma’am. How to go about the extrajudicial foreclosure:
1. File an application or petition for foreclosure with the clerk of
Q: So what happens if the 1 year period already expired? court who has jurisdiction over the property;
A: After the 1 year period already expired, the party who is redeeming the 2. Comply, through the office of the clerk of court, and the sheriffs’,
property is barred from redeeming it ma’am. with the requirements of notice and publication;
3. The application will thereafter be raffled among the sheriffs; and
Atty. Jazzie: Very important dito ang redemption because when you say 4. Public auction will take place.
redemption, the mortgagor may force the mortgagee or the highest bidder 5. The highest bidder will be declared as the purchaser.
to sell back the property to the mortgagor. But once na nag-lapse na yan,
The mortgagor, as a general rule, is entitled to his right of redemption.
absolute na ang ownership. You cannot again force the highest bidder to sell
However, under RA 8791, there is also the General Banking Law, we have to
it to the mortgagor.
take note of the period provided therein if the mortgagor is a juridical person.
Here, you have an extrajudicial foreclosure, they applied Act 3135.
Section 47, General Banking Law. Juridical persons whose properties are
being sold can redeem until the registration of the certificate of foreclosure
In Extrajudicial Foreclosure:
or 90 days or 3months after the foreclosure, whichever is earlier.
General Rule: Right of Redemption
Exception: if the mortgagor is juridical entity, such as a corporation, the 1
year period does not apply

` Page 18 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

G.R. No. 195540 March 13, 2013 exempts from its operation those properties foreclosed prior to its effectivity
Goldenway v Equitable PCI Bank and whose owners shall retain their redemption rights under Act No. 3135.

DOCTRINE: Section 47 did not divest juridical persons of the right to redeem We agree with the CA that the legislature clearly intended to shorten the
their foreclosed properties but only modified the time for the exercise of period of redemption for juridical persons whose properties were foreclosed
such right by reducing the one-year period originally provided in Act and sold in accordance with the provisions of Act No. 3135. The difference
No. 3135. The new redemption period commences from the date of in the treatment of juridical persons and natural persons was based on
foreclosure sale, and expires upon registration of the certificate of sale or the nature of the properties foreclosed – whether these are used as
three months after foreclosure, whichever is earlier. There is likewise no residence, for which the more liberal one-year redemption period is
retroactive application of the new redemption period because Section 47 retained, or used for industrial or commercial purposes, in which case a
exempts from its operation those properties foreclosed prior to its effectivity shorter term is deemed necessary to reduce the period of uncertainty in the
and whose owners shall retain their redemption rights under Act No. 3135. ownership of property and enable mortgagee-banks to dispose sooner of
these acquired assets.
FACTS: On November 29, 1985, petitioner Goldenway Merchandising
Corporation executed a Real Estate Mortgage in favor of Equitable PCI It must be underscored that the General Banking Law of 2000, crafted in the
Bank over three parcels of land as security for a Php2,000,000 loan aftermath of the 1997 Southeast Asian financial crisis, sought to reform the
granted to the petitioner. General Banking Act of 1949 by fashioning a legal framework for maintaining
Petitioner eventually failed to settles its loan obligation, leading respondent a safe and sound banking system. In this context, the amendment
to extrajudicially foreclose the mortgage on December 13, 2000. introduced by Section 47 embodied one of such safe and sound practices
Subsequently, a Certificate of Sale was issued to respondent on January 26, aimed at ensuring the solvency and liquidity of our banks. It cannot
2001. therefore be disputed that the said provision amending the redemption
period in Act 3135 was based on a reasonable classification and
In a letter dated March 7, 2001, petitioner offered to redeem the germane to the purpose of the law.
foreclosed properties by tendering a check. Petitioner and respondent
met on March 12, 2001. However, petitioner was told that redemption The right of redemption being statutory, it must be exercised in the manner
was no longer possible since the certificate of sale had already been prescribed by the statute, and within the prescribed time limit, to make it
registered; the title to the foreclosed properties were consolidated in effective. Furthermore, as with other individual rights to contract and to
favor of the respondent on March 9, 2001. property, it has to give way to police power exercised for public welfare.

Petitioner filed a complaint for specific performance and damages The concept of police power is well-established in this jurisdiction. It has
contending that the 1-year period of redemption under Act 3135 should been defined as the "state authority to enact legislation that may interfere
apply, and not the shorter redemption period under RA 8791 as with personal liberty or property in order to promote the general welfare."
applying RA 8791 would result in the impairment of obligations of Its scope, ever-expanding to meet the exigencies of the times, even to
contracts and would violate the equal protection clause under the anticipate the future where it could be done, provides enough room for an
constitution. efficient and flexible response to conditions and circumstances thus
assuming the greatest benefits.
The RTC dismissed the action of the petitioner ruling that redemption
was made belatedly and that there was no redemption made at all. The The freedom to contract is not absolute; all contracts and all rights are
Court of Appeals affirmed the RTC. subject to the police power of the State and not only may regulations which
affect them be established by the State, but all such regulations must be
ISSUE: Whether or not the redemption period should be the 1-year subject to change from time to time, as the general well-being of the
period provided under Act 3135, and not the shorter period under RA community may require, or as the circumstances may change, or as
8791 as the parties expressly agreed that foreclosure would be in accordance experience may demonstrate the necessity. Settled is the rule that the
with Act 3135 non-impairment clause of the Constitution must yield to the loftier purposes
targeted by the Government. The right granted by this provision must submit
RULING: The shorter period under RA 8791 should apply. to the demands and necessities of the State’s power of regulation.

The one-year period of redemption is counted from the date of the Such authority to regulate businesses extends to the banking industry
registration of the certificate of sale. In this case, the parties provided in which, as this Court has time and again emphasized, is undeniably
their real estate mortgage contract that upon petitioner’s default and imbued with public interest. Having ruled that the assailed Section 47 of
the latter’s entire loan obligation becoming due, respondent may R.A. No. 8791 is constitutional, we find no reversible error committed by the
immediately foreclose the mortgage judicially in accordance with the CA in holding that petitioner can no longer exercise the right of
Rules of Court, or extrajudicially in accordance with Act No. 3135, as redemption over its foreclosed properties after the certificate of sale in
amended. But under Sec 47 of RA 8791, an exception is thus made in favor of respondent had been registered
the case of juridical persons which are allowed to exercise the right of
redemption only "until, but not after, the registration of the certificate of Q: What is this provided period in the General Banking Law?
foreclosure sale" and in no case more than three (3) months after A: In the case of juridical persons which are allowed to exercise the right of
foreclosure, whichever comes first. redemption, the period is only "until, but not after, the registration of the
certificate of foreclosure sale" and in no case more than three (3) months
Section 47 did not divest juridical persons of the right to redeem their after foreclosure, whichever comes first.
foreclosed properties but only modified the time for the exercise of
such right by reducing the one-year period originally provided in Act Q: Is Goldenway correct in its contention?
No. 3135. The new redemption period commences from the date of A: No since Goldenway is a juridical person what should apply is the ____. In
foreclosure sale, and expires upon registration of the certificate of sale or this case, the period within which the right of redemption was exercised was
three months after foreclosure, whichever is earlier. There is likewise no way beyond the allowable period.
retroactive application of the new redemption period because Section 47

` Page 19 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Q: What about the Constitutional issues that were raised by Goldenway G.R. No. 171033 August 3, 2010
here? CITY MAYOR, CITY TREASURER, CITY ASSESSOR, ALL OF QUEZON CITY, and
A: The Supreme Court said that it was not unconstitutional. ALVIN EMERSON S. YU vs. RIZAL COMMERCIAL BANKING CORPORATION

Q: Would it not be a violation of the equal protection clause? Facts: The spouses Roberto and Monette Naval obtained a loan from
A: There is no violation of the equal protection clause because Goldenway as respondent Rizal Commercial Banking Corporation, secured by a real estate
a juridical person was given an opportunity to redeem the property it’s just mortgage of properties covered by Transfer Certificate of Title (TCT) Nos. N-
that as to juridical persons the period is shorter. 167986, N167987, and N-167988. In 1998, the real estate mortgage was
later foreclosed and the properties were sold at public auction with
Q: Why is there a necessity to treat juridical persons differently from respondent as the highest bidder. The corresponding Certificates of Sale
natural persons? What is the basis for it to be shorter? were issued in favor of respondent on August 4, 1998. However, the
A: The difference in the treatment of juridical persons and natural certificates of sale were allegedly registered only on February 10, 2004.
persons was based on the nature of the properties foreclosed – whether
these are used as residence, for which the more liberal one-year redemption Meanwhile, on May 30, 2003, an auction sale of tax delinquent properties
period is retained, or used for industrial or commercial purposes, in which was conducted by the City Treasurer of Quezon City. Included in the
case a shorter term is deemed necessary to reduce the period of uncertainty properties that were auctioned were two (2) townhouse units covered by
in the ownership of property and enable mortgagee-banks to dispose sooner TCT Nos. N-167986 and N-167987 and the parcel of land covered by TCT No.
of these acquired assets. N-167988. For these delinquent properties, Alvin Emerson S. Yu was
adjudged as the highest bidder. Upon payment of the tax delinquencies, he
The exemption with regard to an extrajudicial foreclosure where the was issued the corresponding Certificate of Sale of Delinquent Property.
mortgagor is a juridical person— even if the mortgagee is a bank, as long as
the mortgagor is a juridical person, we apply Sec. 47 of RA 8791, the General On February 10, 2004, the Certificate of Sale of Delinquent Property was
Banking Law of 2000 which states that: Notwithstanding Act 3135, juridical registered with the Office of the Register of Deeds of Quezon City.
persons whose property is being sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property in accordance with this provision On June 10, 2004, respondent tendered payment for all of the assessed tax
until, but not after, the registration of the certificate of foreclosure sale with delinquencies, interest, and other costs of the subject properties with the
the applicable Register of Deeds which in no case shall be more than 3 Office of the City Treasurer, Quezon City. However, the Office of the City
months after foreclosure, whichever is earlier. Owners of property that has Treasurer refused to accept said tender of payment.
been sold in a foreclosure sale prior to the effectivity of this Act shall retain
their redemption rights until their expiration. Undeterred, on June 15, 2004, respondent filed before the Office of the City
Treasurer a Petition for the acceptance of its tender of payment and for the
There was no violation of the non-impairment clause. There is an subsequent issuance of the certificate of redemption in its favor.
impairment if a subsequent law changes the terms of the contract between Nevertheless, respondent’s subsequent tender of payment was also denied.
the parties. In this case, Section 47 did not divest juridical persons of the
right to redeem their foreclosed properties but only modified the time for Consequently, respondent filed a Petition for Mandamus with Prayer for
the exercise of such right by reducing the one-year period originally provided Issuance of a Temporary Restraining Order and a Writ of Preliminary
in Act No. 3135. Injunction3 before the RTC. Petitioners contended, among other things, that
it had until February 10, 2005, or one (1) year from the date of registration
With regard to the alleged violation of the equal protection clause— The of the certificate of sale on February 10, 2004, within which to redeem the
difference in the treatment of juridical persons and natural persons subject properties, pursuant to Section 78 of Presidential Decree (P.D.) No.
was based on the nature of the properties foreclosed – whether these 464 or the Real Property Tax Code.
are used as residence, for which the more liberal one-year redemption
period is retained, or used for industrial or commercial purposes, in which After the parties filed their respective pleadings, the RTC initially denied the
case a shorter term is deemed necessary to reduce the period of uncertainty petition in the Order4 dated December 6, 2004. In denying the petition, the
in the ownership of property and enable mortgagee-banks to dispose sooner RTC opined that respondent’s reliance on Section 78 of P.D. No. 464 as basis
of these acquired assets. of the reckoning period in counting the one (1) year period within which to
redeem the subject properties was misplaced, since P.D. No. 464 has been
A corporation has limited liability. The stockholders, the directors, cannot be expressly repealed by Republic Act (R.A.) No. 7160, or the Local Government
personally liable for the unpaid subscription. But if you are a natural person, Code.
you can be held personally liable, the shorter period is fair because it will be
easier for the corporation to dispose of properties because of its limited It has to be noted that in this case Quezon City has an ordinance which
feature of liability. provides that he one-year redemption period should be counted from the
date of the annotation of the sale of the property at the proper registry.
SC also took into consideration when the General Banking Law was crafted,
and in essence, the right of redemption that is provided under Section 47 is ISSUE:
therefore constitutional. 1. What law applies for the determination of the correct redemption
period?
Sometimes this provision in sec. 47 can be technically referred to as Equity of 2. What was involved here was foreclosure due to non-payment of
Redemption but the period provided under sec. 47 is different from the 90 to property taxes.
120 days period provided under the Rules of Court’s Equity of Redemption in
case of judicial foreclosure. For right of redemption, the period is one year RULING:
from the date of registration.
The owner or any person holding a lien or claim over a tax delinquent
property sold at public auction has one (1) year from the date of registration
of sale to redeem the property. However, since the passing of R.A. No. 7160,
such is no longer controlling. The issue of whether or not R.A No. 7160 or the

` Page 20 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Local Government Code, repealed P.D. No. 464 or the Real Property Tax Consequently, the counting of the one (1) year redemption period of
Code has long been laid to rest by this Court. property sold at public auction for its tax delinquency should be counted
from the date of annotation of the certificate of sale in the proper Register
Jurisdiction thrives to the effect that R.A. No. 7160 repealed P.D. No. 464. of Deeds. Applying the foregoing to the case at bar, from the date of
From January 1, 1992 onwards, the proper basis for the computation of the registration of the Certificate of Sale of Delinquent Property on February 10,
real property tax payable, including penalties or interests, if applicable, must 2004, respondent had until February 10, 2005 to redeem the subject
be R. A. No. 7160. properties. Hence, its tender of payment of the subject properties tax
delinquencies and other fees on June 10, 2004, was well within the
Inasmuch as the crafter of the Local Government Code clearly worded the redemption period, and it was manifest error on the part of petitioners to
above-cited Section to repeal P.D. No. 464, it is a clear showing of their have refused such tender of payment.
legislative intent that R.A. No. 7160 was to supersede P.D. No. 464. As such,
it is apparent that in case of sale of tax delinquent properties, R.A. No. 7160 Absent an ordinance in any other case involving real property tax
is the general law applicable. Consequently, as regards redemption of tax delinquency, RA 7160 applies.
delinquent properties sold at public auction, the pertinent provision is
Section 261 of R.A. No. 7160, which provides: Section 7. In any sale made under the provisions of this Act, the purchaser
may petition the Court of First Instance of the province or place where the
“Section 261. Redemption of Property Sold. Within one (1) year from the property or any part thereof is situated, to give him possession thereof
date of sale, the owner of the delinquent real property or person having during the redemption period, furnishing bond in an amount equivalent to
legal interest therein, or his representative, shall have the right to redeem the use of the property for a period of twelve months, to indemnify the
the property upon payment to the local treasurer of the amount of debtor in case it be shown that the sale was made without violating the
delinquent tax, including the interest due thereon, and the expenses of sale mortgage or without complying with the requirements of this Act. Such
from the date of delinquency to the date of sale, plus interest of not more petition shall be made under oath and filed in form of an ex parte motion in
than two percent (2%) per month on the purchase price from the date of the registration or cadastral proceedings if the property is registered*, or in
sale to the date of redemption. Such payment shall invalidate the certificate special proceedings in the case of property registered under the Mortgage
of sale issued to the purchaser and the owner of the delinquent real Law or under section one hundred and ninety-four of the Administrative
property or person having legal interest therein shall be entitled to a Code, or of any other real property encumbered with a mortgage duly
certificate of redemption which shall be issued by the local treasurer or his registered in the office of any register of deeds in accordance with any
deputy. existing law, and in each case the clerk of the court shall, upon the filing of
such petition, collect the fees specified in paragraph eleven of section one
From the date of sale until the expiration of the period of redemption, the hundred and fourteen of Act Numbered Four hundred and ninety-six, as
delinquent real property shall remain in the possession of the owner or amended by Act Numbered Twenty-eight hundred and sixty-six, and the
person having legal interest therein who shall remain in the possession of court shall, upon approval of the bond, order that a writ of possession issue,
the owner or person having legal interest therein who shall be entitled to the addressed to the sheriff of the province in which the property is situated,
income and other fruits thereof. who shall execute said order immediately

The local treasurer or his deputy, upon receipt from the purchaser of the DISCUSSION
certificate of sale, shall forthwith return to the latter the entire amount paid
by him plus interest of not more than two percent (2%) per month. Q: What period is provided under the Local Government Code (LGC)?
Thereafter, the property shall be free from all lien of such delinquent tax, A: Under the LGC it is now 1 year from the date of the sale.
interest due thereon and expenses of sale.”
Q: Does it have the same interpretation in ACT 3135 wherein even if the
From the foregoing, the owner of the delinquent real property or person provision stated that it is to be reckoned from the date of sale, it should be
having legal interest therein, or his representative, has the right to redeem interpreted as from the date of the registration of the sale?
the property within one (1) year from the date of sale upon payment of the A: No. It is to be reckoned from the date of the sale itself.
delinquent tax and other fees.
Q: In this case was the tender of payment made within the said period, 1
Verily, the period of redemption of tax delinquent properties should be year from the date of sale?
counted not from the date of registration of the certificate of sale, as A: In this case, the ordinance states that it should be reckoned from the date
previously provided by Section 78 of P.D. No. 464, but rather on the date of of the annotation
sale of the tax delinquent property, as explicitly provided by Section 261 of
R.A. No. 7160. Q: Is that not contrary to what is provided in the LCG? Which will prevail
the ordinance of the LGC?
However since in the case at bar, there is an ordinance involved. At first A: NO. The interpretation of the ordinance because aside from the liberal
glance, this provision runs counter to that of Section 261 of R.A. No. 7160 construction in order to protect the rights of the redemptioner, the rule in
which provides that the one year redemption period shall be counted from Statutory Construction is that if there is a general law and a special law, the
the date of sale of the tax delinquent property. There is, therefore, a need to special law should prevail. In this case, since the ordinance of Quezon City is
reconcile these seemingly conflicting provisions of a general law and a a specific law then it should prevail over the LGC.
special law.
The first thing to take note is that this involves not a judicial foreclosure sale
To harmonize the provisions of the two laws and to maintain the policy of but a tax delinquency sale for failure to pay the real property taxes which
the law to aid rather than to defeat the owners right to redeem his property, gives the local government the right to sell tax delinquent properties to pay
Section 14 (a), Paragraph 7 of City Ordinance No. SP-91, S-93 should be off the unpaid taxes. I decided to include this so you will not get confused
construed as to define the phrase one (1) year from the date of sale as with the redemption period.
appearing in Section 261 of R.A. No. 7160, to mean one (1) year from the
date of the annotation of the sale of the property at the proper registry. First thing that was alleged was the provision in PD 464, 1 year from the date
of registration. However, inasmuch as in the LGC there is a showing that the

` Page 21 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

legislative intent of RA 7160 was to supersede PD 464 in case of sale of tax


delinquent properties. RA 7160 is now the general law applicable to which Philbancor alleged, among others, that it has no tenancy or agricultural
sec. 261 shall be applied within 1 year from the date of sale. The phrase relationship with private respondents considering that it acquired ownership
within 1 year from the date of sale should not be interpreted in the same over the disputed lots by virtue of an extra-judicial foreclosure sale pursuant
way as we interpret ACT 3135. This is from the date of actual sale and not of to Act 3135, as amended; that it is not an agricultural lessor as contemplated
registration. in Section 10 of Republic Act (RA) No. 3844, as amended; that assuming
private respondents have the right to redeem the lots in question, such right
Why is it that in this case, redemption was still allowed 1 year from the date has already expired in accordance with Section 12 of R.A. 3844, which states
of annotation or registration? that the right of redemption may be exercised within two (2) years from the
registration of the sale.
It is because of the city ordinance which explicitly stated that the one year
period should be counted as within 1 year from the annotation of the sale of Provincial adjudicator rendered a decision in favor of the private
the property at the property registry. respondents. Petitioners filed with the Court of Appeals a petition for review
of the decision of the DARAB. CA dismissed said petition.
The SC discussed the statutory construction. “A general law and a special
law on the same subject should be accordingly read together and ISSUE: Whether or not the private respondents could still exercise their right
harmonized, if possible, with a view to giving effect to both. Where there are of redemption of the parcels of land sold at public auction due to foreclosure
two acts, one of which is special and particular and the other general which, of the mortgages thereon considering that they invoked their right to
if standing alone, would include the same matter and thus conflict with the redeem only on July 14, 1992, seven years after the date of registration of
special act, the special must prevail, since it evinces the legislative intent the certificate of sale with the Register of Deeds.
more clearly than that of the general statute and must be taken as intended
to constitute an exception to the rule.” HELD: Yes. Republic Act No. 3844, Section 12, provides as follows:

Furthermore, “the law protects the original owner. It is the policy of the law In case the landholding is sold to a third person without the knowledge of
to aid rather than to defeat the owners’ right. Therefore, redemption should the agricultural lessee, the latter shall have the right to redeem the same at
be looked upon with favor and where no injury will follow, a liberal a reasonable price and consideration. Provided, that the entire landholding
construction will be given to our redemption laws, specifically on the sold must be redeemed. Provided further, that where there are two or more
exercise of the right to redeem.” agricultural lessees, each shall be entitled to said right of redemption only to
the extent of the area actually cultivated by him. The right of redemption
Take note of the law or ordinance applicable to a specific city or municipality. under this section may be exercised within two (2) years from the
In the absence of any ordinance similar to this in Quezon City, the registration of the sale and shall have priority over any other right of legal
redemption period fora tax delinquent sale of property should be 1 year redemption.
from the date of sale as provided in the LGC.
In this case, the certificate of sale of the subject property, which was sold at
G.R. No. 129572 June 26, 2000 public auction, was registered with the Register of Deeds of Pampanga on
July 31, 1985. The two-year redemption period thus expired on July 31,
PHILBANCOR FINANCE, INC. AND VICENTE HIZON, JR. vs. COURT OF 1987. The complaint for redemption was filed by respondents only on July
APPEALS, THE HONORABLE DEPARTMENT OF AGRARIAN REFORM 14, 1992, five (5) years after expiration of the redemption period prescribed
ADJUDICATION BOARD (DARAB), ALFREDO PARE, PABLO GALANG and by law.
AMADO VIE
Nonetheless, private respondents may continue in possession and
FACTS: Private respondents Alfredo Pare, Pablo Galang and Amado Vie, as enjoyment of the land in question as legitimate tenants because the right of
plaintiffs, filed with the Provincial Agrarian Reform Adjudication Board tenancy attaches to the landholding by operation of law. The leasehold
(PARAB) a complaint for maintenance of possession with redemption and relation is not extinguished by the alienation or transfer of the legal
tenancy right of pre-emption against petitioners Philbancor Finance, Inc. and possession of the landholding.
Vicente Hizon, Jr. Private respondents alleged, inter alia, that petitioner
Vicente Hizon, Jr. is the owner of the disputed agricultural lands and that DISCUSSION
they (private respondents) are the legitimate and bona fide tenants thereof;
that on October 13, 1983, petitioner Hizon, without their knowledge, Q: What is RA 3844?
mortgaged the disputed lots to petitioner Philbancor Finance, Inc.; that A: The Agricultural Land Reform Act
petitioner Hizon failed to pay his obligations to petitioner Philbancor, which
eventually led to the sale of the mortgaged lots to the latter; that they came Q: What is the period of redemption provided therein? Is it one year?
to know of the transaction only when they were notified by petitioner A: No, the period of redemption is 2 years from the registration of the sale.
Philbancor to vacate the lots; that they have been tenants on the lots for
more than fifty (50) years; that petitioner Philbancor threatened to take “In this case, the certificate of sale of the subject property, which was sold at
from them the actual or physical possession of the agricultural lots; that public auction, was registered with the Register of Deeds of Pampanga on
unless the threatened acts of petitioner are restrained, they will suffer July 31, 1985. The two-year redemption period thus expired on July 31, 1987.
substantial and irreparable injury. The complaint for redemption was filed by respondents only on July 14, 1992,
five (5) years after expiration of the redemption period prescribed by law.
In his answer, petitioner Hizon admitted that private respondents are his
bonafide and legitimate tenants but he averred, by way of affirmative Nonetheless, private respondents may continue in possession and
defenses, that he is not threatening to take possession of the disputed lots enjoyment of the land in question as legitimate tenants because the right of
as he is no longer the owner thereof after said lots were foreclosed by tenancy attaches to the landholding by operation of law. The leasehold
petitioner Philbancor; that private respondents were aware when he relation is not extinguished by the alienation or transfer of the legal
mortgaged the lots as they were with him when he tried to negotiate for possession of the landholding.”
payment of his loan to petitioner Philbancor.

` Page 22 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Here, do take note that the procedure to be followed in relation to


extrajudicial foreclosure proceedings must be strictly complied with. The On whether there was publication of the notice of sale of the real properties
importance of notice and publication, in an extrajudicial proceeding is in compliance with Act No. 3135:
emphasized. For example, the property must be clearly identified, if in the as
publication, the title number or description of boundaries is wrong, then the There is no question that DBP published the notice of auction sale scheduled
foreclosure proceedings will not be valid. on 12 August 1986. However, no auction sale took place on 12 August 1986
because DBP, at the instance of ERHC, agreed to postpone the same to 11
G.R. No. 125838. June 10, 2003 September 1986. DBP contends that the agreement to postpone dispensed
with the need to publish again the notice of auction sale. Thus, DBP did not
DEVELOPMENT BANK OF THE PHILIPPINES, vs. CA and EMERALD RESORT anymore publish the notice of the 11 September 1986 auction sale. DBP
HOTEL CORPORATION insists that the law does not require republication of the notice of a
rescheduled auction sale. Consequently, DBP argues vigorously that the
FACTS: ERHC failed to pay its loan, DBP filed with the Office of the Sheriff, extrajudicial foreclosure of the real estate mortgage is valid. INCORRECT.
Regional Trial Court of Iriga City, and an Application for Extra-judicial
Foreclosure of Real Estate and Chattel Mortgages. In Ouano v. Court of Appeals, it was held that republication in the manner
prescribed by Act No. 3135 is necessary for the validity of a postponed
Deputy Provincial Sheriffs Abel Ramos and Ruperto Galeon issued the extrajudicial foreclosure sale. Another publication is required in case the
required notices of public auction sale of the personal and real properties. auction sale is rescheduled, and the absence of such republication
However, Sheriffs Ramos and Galeon failed to execute the corresponding invalidates the foreclosure sale.
certificates of posting of the notices. On 10 July 1986, the auction sale of the
personal properties proceeded. 2. If publication requirement may be waived by parties, SAME RULING IN
OUANO.
The Office of the Sheriff scheduled on 12 August 1986 the public auction sale
of the real properties. The Bicol Tribune published on 18 July 1986, 25 July 3. Is it possible to only have ONE PUBLISHED NOTICE OF SALE, but
1986 and 1 August 1986 the notice of auction sale of the real properties. the subsequent RESCHEDULED sale will be valid without need of another
However, the Office of the Sheriff postponed the auction sale on 12 August publication?
1986 to 11 September 1986 at the request of ERHC. DBP did not republish
the notice of the rescheduled auction sale because DBP and ERHC signed an YES. If the first notice of sale EXPRESSLY STATES AND ALLOWS the holding of
agreement to postpone the 12 August 1986 auction sale. ERHC, however, a rescheduled auction sale without reposting or republication of the notice.
disputes the authority of Jaime Nuevas who signed the agreement for ERHC. However, the rescheduled auction sale will only be valid if the rescheduled
date of auction is clearly specified in the prior notice of sale. The rescheduled
In a letter dated 24 November 1986, ERHC informed DBP of its intention to dates must be SPECIFIED. The absence of this information in the prior notice
lease the foreclosed properties. of sale will render the rescheduled auction sale void for lack of reposting or
republication. If the notice of auction sale contains this particular
On 22 December 1986, ERHC filed with the Regional Trial Court of Iriga City a information, whether or not the parties agreed to such rescheduled date,
complaint for annulment of the foreclosure sale of the personal and real there is no more need for the reposting or republication of the notice of the
properties. Subsequently, ERHC filed a Supplemental Complaint. ERHC rescheduled auction sale.
alleged that the foreclosure was void mainly because (1) DBP failed to
comply with the procedural requirements prescribed by law; and (2) the The Office of the Court Administrator issued Circular No. 72002 pursuant to
foreclosure was premature. the 14 December 1999 Resolution of this Court in A.M. No. 99-10-05-0, as
amended by the Resolutions of 30 January 2001 and 7 August 2001. The
ISSUES and RULING: Court issued these Resolutions for two reasons.
1. Whether DBP complied with the posting and publication requirements
under applicable laws for a valid foreclosure. First, the Court seeks to minimize the expenses which the mortgagee incurs
in publishing the notice of extrajudicial sale. With the added information in
ON THE POSTING OF AUCTION SALE NOTICES: the notice of sale, the mortgagee need not cause the reposting and
republication of the notice of the rescheduled auction sale. There is no
DBP insists that the non-execution of the certificate of posting of the auction violation of the notice requirements under Acts Nos. 3135 and 1508
sale notices did not invalidate the foreclosure. CORRECT. precisely because the interested parties as well as the public are informed of
the schedule of the next auction sale, if the first auction sale does not
A certificate of posting is not required, much less considered indispensable proceed. Therefore, the purpose of a notice of sale, which is to notify the
for the validity of an extrajudicial foreclosure sale of real property under Act mortgagor and the public of the foreclosure sale, is satisfied.
No. 3135. In the present case, the foreclosing sheriffs failed to execute the
certificate of posting of the auction sale notices. However, this fact alone Second, the Court hopes to deter the practice of some mortgagors in
does not prove that the sheriffs failed to post the required notices. As held in requesting postponement of the auction sale of real properties, then later
Bohanan, the fact alone that there is no certificate of posting attached to the attacking the validity of the foreclosure for lack of republication. This
sheriff's records is not sufficient to prove the lack of posting. practice will only force mortgagees to deny outright requests for
postponement by mortgagors since it will only mean added publication
Based on the records, DBP presented sufficient evidence to prove that the expense on the part of mortgagees. Such development will eventually work
sheriffs posted the notices of the extrajudicial sale. against mortgagors because mortgagees will hesitate to grant
postponements to mortgagors.
In the absence of contrary evidence, as in this case, the presumption prevails
that the sheriffs performed their official duty of posting the notices of sale. In the instant case, there is no information in the notice of auction sale of
Consequently, we hold that the non-execution of the certificate of posting any date of a rescheduled auction sale. Even if such information were stated
cannot nullify the foreclosure of the chattel and real estate mortgages in the in the notice of sale, the reposting and republication of the notice of sale
instant case. would still be necessary because Circular No. 7-2002 took effect only on 22

` Page 23 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

April 2002. There were no such guidelines in effect during the questioned DBP, however, complied with the mandatory posting of the notices of the
foreclosure. auction sale of the personal properties. Under the Chattel Mortgage Law, the
only requirement is posting of the notice of auction sale. There was no
DISCUSSION postponement of the auction sale of the personal properties and the
foreclosure took place as scheduled. Thus, the extrajudicial foreclosure of
Q: What is the requirement? the chattel mortgage in the instant case suffers from no procedural infirmity.
A: Publication, and posting of the notice of sale in conspicuous public places
Here you have to distinguish the requirement of posting as required in Act
Q: Was the requirement of posting duly complied with? 3135 and the certificate of posting issued with the sheriff. The certificate of
A: Yes. The sheriff posted the notices of the sale in places where the posting is not required for the validity of an extrajudicial foreclosure. The
property is situated, and further there is a presumption of regularity of in the fact alone that there is no certificate of posting attached to the sheriff’s
exercise of the official function of the sheriff. record is not sufficient to prove the lack of posting. What the law requires is
the posting of the notice of sale, which is present in this case, and not the
Q: How about the issue to the publication? execution of the certificate of posting. Moreover, the presumption prevails
A: It was not complied with. “The Court held recently in Ouano v. Court of that the sheriffs performed their official duty of posting the notices of sale.
appeals that republication in the manner prescribed by Act No. 3135 is
necessary for the validity of a postponed extrajudicial foreclosure sale. Now, about the issue with regard to the publication. There was a publication
Another publication is required in case the auction sale is rescheduled, and of the sale here in 3 different dates in a newspaper of general circulation but
the absence of such republication invalidates the foreclosure sale.” the date provided therein is different from the date of the actual date of sale
because they moved the said sale.
Q: Assuming that there was already an agreement between the mortgagor
and mortgagee, would it not be sufficient to make the publication not We could apply the same rule here with regard to extrajudicial foreclosure
required anymore? so that there would be less expenses for publication. But in this instance,
A: No. The auction sale is a public auction so if only the parties agree to the there is no provision in the notice of sale that in case the first sale or first
foreclosure date, it becomes a private sale. schedule the sale will not push through, the sale will be transferred to
another specific date. That is not present in the case. That is not compliance
“Publication, therefore, is required to give the foreclosure sale a reasonably with the foreclosure proceedings which made it invalid.
wide publicity such that those interested might attend the public sale. To
allow the parties to waive this jurisdictional requirement, result in converting The Court, with this notice, hopes to deter the practice of some mortgagors
into a private sale what ought to be a public auction.” in requesting postponement of the auction sale of real properties, then later
attacking the validity of the foreclosure for lack of republication. This
Q: When is it possible that the sale would still comply with the practice will only force mortgagees to deny outright requests for
requirement of publication without the need for republication despite postponement by mortgagors since it will only mean added publication
transfer of the scheduled date of the sale? expense on the part of mortgagees.
A: The rescheduled auction sale will only be valid if the rescheduled date of
auction is clearly specified in the prior notice of sale. The absence of this Moreover, differentiate this with the Chattel Mortgage Law. Under the
information in the prior notice of sale will render the rescheduled auction Chattel Mortgage Law, the only requirement is posting of the notice of
sale void for lack of reposting or republication. If the notice of auction sale auction sale. In this case, there was no postponement of the auction sale of
contains this particular information, whether or not the parties agreed to the personal properties and the foreclosure took place as scheduled. Thus,
such rescheduled date, there is no more need for the reposting or the extrajudicial foreclosure of the chattel mortgage in the instant case
republication of the notice of the rescheduled auction sale. suffers from no procedural infirmity.

This is based on Circular No. 7-2002 pursuant to the 14 December 1999 Take note in this case of strict compliance with the requirement of notice of
Resolution of this Court in A.M. No. 99-10-05-0, as amended by the publication as provided under Act 3135.
Resolutions of 30 January 2001 and 7 August 2001.
FIRST DIVISION [G.R. No. 129279. March 4, 2003]
With the added information in the notice of sale, the mortgagee need not ALFREDO M. OUANO, petitioner, vs. COURT OF APPEALS, and HEIRS OF
cause the reposting and republication of the notice of the rescheduled JULIETA M. OUANO
auction sale. There is no violation of the notice requirements under Acts Nos.
3135 and 1508 precisely because the interested parties as well as the public Facts: On June 8, 1977, respondent Julieta M. Ouano (Julieta), now
are informed of the schedule of the next auction sale, if the first auction sale deceased, obtained a loan from the Philippine National Bank (PNB) in the
does not proceed. Therefore, the purpose of a notice of sale, which is to amount of P104, 280.00. As security for said loan, she executed a real estate
notify the mortgagor and the public of the foreclosure sale, is satisfied. mortgage over two parcels of land located at Opao, Mandaue City. She
defaulted on her obligation. On September 29, 1980, PNB filed a petition for
In the instant case, there is no information in the notice of auction sale of extrajudicial foreclosure with the City Sheriff of Mandaue City.
any date of a rescheduled auction sale. Even if such information were stated
in the notice of sale, the reposting and republication of the notice of sale On November 4, 1980, the sheriff prepared a notice of sale setting the date
would still be necessary because Circular No. 7-2002 took effect only on 22 of public auction of the two parcels of land on December 5, 1980 at 9:00
April 2002. There were no such guidelines in effect during the questioned a.m. to 4:00 p.m. He caused the notice to be published in the Cebu Daily
foreclosure. Times, a newspaper of general circulation in Mandaue City, in its issues of
November 13, 20 and 27, 1980. He likewise posted copies thereof in public
Clearly, DBP failed to comply with the publication requirement under Act No. places in Mandaue City and in the place where the properties are located.
3135. There was no publication of the notice of the rescheduled auction sale
of the real properties. Therefore, the extrajudicial foreclosure of the real However, the sale as scheduled and published did not take place as the
estate mortgage is void. parties, on four separate dates, executed Agreements to Postpone Sale
(Agreements). These Agreements were addressed to the sheriff, requesting

` Page 24 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

the latter to defer the auction sale to another date at the same time and necessary to do so for lack of time to complete the sale on the day fixed
place, without any further republication of the Notice. Petitioner, however, in the notice.
insists that there was substantial compliance with the publication
requirement, considering that prior publication and posting of the notice of No. At the outset, distinction should be made of the three different kinds of
the first date were made sales under the law, namely: an ordinary execution sale, a judicial
foreclosure sale, and an extrajudicial foreclosure sale.
ISSUES:
1. Whether the rescheduled extrajudicial foreclosure sale was valid despite An ordinary execution sale is governed by the pertinent provisions of Rule 39
absence of republication of the Notice, despite agreement between of the Rules of Court. Rule 68 of the Rules of Court applies in cases of
parties to do away with the republication judicial foreclosure sale.

NO. The governing law for extrajudicial foreclosures is Act No. 3135 as On the other hand, Act No. 3135, as amended by Act No. 4118 otherwise
amended by Act No. 4118. The provision relevant to this case is Section 3, known as An Act to Regulate the Sale of
which provides: Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages applies in cases of extrajudicial foreclosure sale.
SEC. 3. Notice shall be given by posting notices of the sale for not
less than twenty (20) days in at least three public places of the A different set of law applies to each class of sale mentioned.
municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice The cited provision in the Rules of Court hence does not apply to an
shall also be published once a week for at least three consecutive extrajudicial foreclosure sale.
weeks in a newspaper of general circulation in the municipality of
city. 4. Whether or not Julieta’s act of requesting the postponement and
repeatedly signing the Agreements (WAIVER) had placed her under
It is a well-settled rule that statutory provisions governing publication of estoppel, barring her from challenging the lack of publication of the
notice of mortgage foreclosure sales must be strictly complied with, and that auction sale.
even slight deviations therefrom will invalidate the notice and render the
sale at least voidable. Where required by the statute or by the terms of the NO. The waiver being void for being contrary to the express mandate of Act
foreclosure decree, public notice of the place and time of the mortgage No. 3135, such cannot be ratified by estoppel. Estoppel cannot give validity
foreclosure sale must be given, a statute requiring it being held applicable to to an act that is prohibited by law or one that is against public policy.
subsequent sales as well as to the first advertised sale of the property. Neither can the defense of illegality be waived.

The principal object of a notice of sale in a foreclosure of mortgage is not so 5. Whether or not there is laches when Julieta filed her complaint with the
much to notify the mortgagor as to inform the public generally of the nature trial court after almost two years from the May 29, 1981 auction sale
and condition of the property to be sold, and of the time, place, and terms of
the sale. Notices are given to secure bidders and prevent a sacrifice of the NO. An action or defense for the declaration of the inexistence of a contract
property. Clearly, the statutory requirements of posting and publication are does not prescribe under Article 1410 of the Civil Code.
mandated, not for the mortgagors benefit, but for the public or third
persons. In fact, personal notice to the mortgagor in extrajudicial foreclosure
proceedings is not even necessary, unless stipulated. As such, it is imbued DISCUSSION
with public policy considerations and any waiver thereon would be Q: Isn’t it that there was already a waiver of the publication?
inconsistent with the intent and letter of Act No. 3135. A: Yes, there was a waiver. So the question to be answered is may the
requirement of publication and posting be waived by the parties? The
Publication, therefore, is required to give the foreclosure sale a reasonably answer is NO. It cannot be waived by the parties. The SC said that publication
wide publicity such that those interested might attend the public sale. To is a jurisdictional requirement such that if there is no publication or posting
allow the parties to waive this jurisdictional requirement would result in of notice, jurisdiction will not be conferred upon the court.
converting into a private sale what ought to be a public auction.
Take note of the importance of posting of the notice of sale and the
2. Whether publication may be waived as agreed by the parties publication, it must be strictly complied with. In this instance, waiver of the
posting and publication can never be valid. Because as stated in the earlier
It cannot be waived. The principal object of a notice of sale in a foreclosure case of DBP, the extrajudicial foreclosure sale is public in nature and never
of mortgage is not so much to notify the mortgagor as to inform the public just between the mortgagor and the mortgagee. So even if there was
generally of the nature and condition of the property to be sold, and of the publication of the notice for the first sale and then the first sale was
time, place, and terms of the sale. Notices are given to secure bidders and subsequently cancelled and postponed, there must be compliance with the
prevent a sacrifice of the property. Clearly, the statutory requirements of republication and posting of the notice where in the said publication or the
posting and publication are mandated, not for the mortgagors benefit, but net publication or notice posted will now indicate the next scheduled date of
for the public or third persons. In fact, personal notice to the mortgagor in the foreclosure date. So actual date of sale must conform to what is
extrajudicial foreclosure proceedings is not even necessary, unless provided in the notice that was posted in conspicuous places usually at the
stipulated. As such, it is imbued with public policy considerations and any court, city hall, and the barangay where the property is located. And then of
waiver thereon would be inconsistent with the intent and letter of Act No. course the requirement of publication.
3135.
Now, what happens after the redemption period has already expired, the
3. Whether the Rules of Court applies to an extrajudicial foreclosure sale, foreclosure proceeding was valid, and all the requisites were complied with?
specifically, Rule 39, Section 24 Adjournment of Sale: By written consent What is the next step for highest bidder, who may be a third person or the
of debtor and creditor, the officer may adjourn any sale upon execution mortgagee? The next step is for such highest bidder to consolidate the title
to any date agreed upon in writing by the parties. Without such in his name.
agreement, he may adjourn the sale from day to day, if it becomes

` Page 25 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

UNIONBANK OF THE PHILIPPINES VS. THE COURT OF APPEALS and October 1994” in its name, resulting to the issuance of TCT No. 120929 by
FERMINA S. DARIO and REYNALDO S. DARIO the Register of Deeds of Quezon City.
In its 19 August 1995 Order, the RTC held the mortgagors and the City Sheriff
DOCTRINE: In real estate mortgage, when the principal obligation is not paid of Quezon City in default and sustained UNIONBANK’s contention that the
when due, the mortgages has the right to foreclose the mortgage and to act sought to be enjoined had been enforced, negating the need of hearing
have the property seized and sold with a view to applying the proceeds to the application for preliminary injunction.
the payment of the principal obligation. Foreclosure may be effected either
judicially or extra-judicially. In a public bidding during extra-judicial After considering the arguments presented by the parties, the CA ruled that
foreclosure, the creditor mortgagee, trustee, or other person authorized to despite its knowledge that the ownership of the property was being
act for the creditor may participate and purchase the mortgaged property as questioned, UNIONBANK took advantage of the DARIOs’ procedural error by
any other bidder. Thereafter the mortgagor has one year within which to consolidating title to the property, which “smacked of bad faith” and
redeem the property from and after registration of sale with the Register of “evinced a reprobate disposition of the part of its counsel to advance his
Deeds. In case of non-redemption, the purchaser at foreclosure sale shall file client’s cause by fair means or foul.” As a result thereof the transfer of title
with the Register of Deeds, either a final deed of sale executed by the person was vitiated by non-adherence to procedural due process.
authorized by virtue of the power of attorney embodied in the deed or
mortgage, or his sworn statement attesting to the fact of non-redemption; On 26 June 1997, CA nullified the consolidation of ownership, ordered the
whereupon, the Register of Deeds shall issue a new certificate of title in Register of Deeds to cancel the certificate of title in UNIONBANK’s name and
favor of the purchaser after the owner’s duplicate of the certificate has been to reinstate TCT No. 41828 with the notice of lis pendens annotated at the
previously delivered and cancelled. Thus, upon failure to redeem foreclosed back. The CA also set aside the portion of the assailed
realty, consolidation of title becomes a matter of right on the part of the RTC Orders that declared the DARIOs’ prayer for writ of preliminary
auction buyer, and the issuance of a certificate of title in favor of the injunction as moot and academic. UNIONBANK’s motion for reconsideration
purchaser becomes ministerial upon the Register of Deeds. of the abovementioned decision was likewise rejected for lack of merit on 7
April 1998.
FACTS: This case stemmed from a real estate mortgage executed by spouses
Leopoldo and Jessica Dario (hereafter mortgagors) in favor of UNIONBANK to UNIONBANK’s contention: came to this Court claiming to be a mortgagee in
secure a P3 million loan, including interest and other charges. The mortgage good faith and for value with a right to consolidate ownership over the
covered a Quezon City property in Leopoldo Dario’s name and was foreclosed property with the redemption period having expired and there
annotated on the title on 18 December 1991. For non-payment of the having been no redemptioners. UNIONBANK contends that the TRO which
principal obligation, UNIONBANK extrajudicially foreclosed the property provisionally enjoined the tolling of the redemption period was
mortgaged on 12 August 1993 and sold the same at public auction, with automatically dissolved upon dismissal of the complaint on 17 October 1994.
itself posting the highest bid. Conformably, consolidation of title in its name and the issuance of TCT No.
120929 rendered further proceedings on the application for injunction
On 4 October 1994, one week before the one-year redemption period academic. Moreover, the alleged fraudulent mortgage was facilitated
expired, the DARIOs filed a complaint with the RTC of Quezon City against through the DARIOs’ negligence so they must bear the loss. It also contends
the mortgagors, UNIONBANK, the Register of Deeds and the City Sheriff of that since the DARIOs had filed several pleadings, due process, being an
Quezon City. The complaint was for annulment of sale and real estate opportunity to be heard either through pleadings or oral arguments, was
mortgage with reconveyance and prayer for restraining order and observed.
prohibitory injunction. A notice of lis pendens was annotated on the title.
Dario’s contention: that UNIONBANK’s consolidation of the title in its name
On 10 October 1994, RTC issued a temporary restraining order (TRO) was in bad faith, vitiated a standing court order, and is against the law, thus
enjoining the redemption of property within the statutory period and its void ab initio. The application for preliminary injunction was not rendered
consolidation under UNIONBANK’s name. moot and academic by consolidation, which took place during the lifetime of
the TRO, and did not follow the proper legal procedure due to the
In the meantime, without notifying the DARIOs, UNIONBANK consolidated its surreptitious manner it was accomplished. By treating the application for
title over the foreclosed property on 24 October 1994. TCT No. 41828 was preliminary injunction as moot and academic and denying the motion for
cancelled and TCT No. 120929 in UNIONBANK’s name was issued in its stead. indirect contempt without hearing, the RTC order ran afoul with the
requirements of due process.
The DARIOs filed an amended complaint on 9 December 1994, alleging that
they, not the mortgagors, are the true owners of the property mortgaged ISSUE: Whether or not the consolidation of title in UNIONBANK’s name
and insisting on the invalidity of both the mortgage and its subsequent proper. YES
extrajudicial foreclosure. They claimed that the original title, TCT No. 61571, HELD: UNIONBANK’s consolidation of title over the property on 24 October
was entrusted to a certain Atty. Reynaldo Singson preparatory to its 1994 was proper, though precipitate. Contrary to the DARIOs’ allegation
administrative reconstitution after a fire gutted the Quezon City Hall UNIONBANK violated no standing court order. The only bar to consolidation
building. Mortgagor Leopoldo, private respondent Fermina’s son, obtained was the temporary restraining order issued by Justice Lipana-Reyes on 10
the property from Atty. Singson, had the title reconstituted under his name October 1994 which effectively halted the tolling of the redemption period 7
without the DARIOs’ knowledge, executed an ante-dated deed of sale in his days short of its expiration. When the DARIOs’ original complaint was
favor and mortgaged the property to UNIONBANK. dismissed on 17 October 1994 for failure to append a certification of non-
forum shopping, the TRO, as an ancillary order that cannot stand
The CA upheld Judge Capulong’s order admitting the amended complaint on independent of the main proceeding, became functus officio. Thus the
24 April 1995, UNIONBANK thereafter elevated its cause to this Court. tolling of the 12-month redemption period, interrupted by the filing of the
complaint and the TRO, recommenced and eventually expired 7 days
Meanwhile, on February 9, 1995, UNIONBANK filed its answer ad cautelam thereafter or on 24 October 1994, the date of the disputed consolidation.
asserting its status as an innocent mortgagee for value whose right or lien
upon the property mortgaged must be respected even if the mortgagor The motion for reconsideration and to amend complaint filed by private
obtained his title through fraud. It also averred that the action had become respondent on 20 October 1994 was of no moment, this Court recognizing
“moot and academic by the consolidation of the foreclosed property on 24 that “a dismissal, discontinuance or non-suit of an action in which a

` Page 26 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

restraining order or temporary injunction has been granted operates as a right is material and substantial and that there is an urgent and paramount
dissolution of the restraining order or temporary injunction,” regardless of necessity for the writ to prevent a serious damage. The injunctive remedy
whether the period for filing a motion for reconsideration of the order prevents a threatened or continuous irremediable injury to some of the
dismissing the case or appeal therefrom has expired. The rationale therefor parties before their claim can be thoroughly investigated and advisedly
is that even in cases where an appeal is taken from a judgment dismissing an adjudicated; it is resorted to only when there is a pressing necessity to avoid
action on the merits, the appeal does not suspend the judgment, hence the injurious consequences which cannot be remedied under any standard
general rule applies that a temporary injunction terminates automatically on compensation.
the dismissal of the action.
In the case at bar, the consolidation of ownership over the mortgaged
We disagree with the appellate court’s observation that consolidation property in favor of UNIONBANK and the issuance of a new title in its name
deprived the DARIOs of their property without due process. It is settled that during the pendency of an action for annulment and reconveyance will not
the buyer in a foreclosure sale becomes the absolute owner of the property cause irreparable injury to private respondents who are plaintiffs in the said
purchased if it is not redeemed during the period of one year after the action that will merit the protection of the court through the writ of
registration of the sale. Consolidation took place as a matter of right since preliminary injunction.
there was no redemption of the foreclosed property and the TRO expired
upon dismissal of the complaint. UNIONBANK need not have informed This is because as purchaser at a public auction, UNIONBANK is only
private respondent that it was consolidating its title over the property, upon substituted to and acquires the right, title, interest and claim of the
the expiration of the redemption period, without the judgment debtor judgment debtors or mortgagors to the property at the time of levy. Perforce,
having made use of his right of redemption, the ownership of the property the judgment in the main action for reconveyance will not be rendered
sold becomes consolidated in the purchaser. Notice to the mortgagors and ineffectual by the consolidation of ownership and the issuance of title in the
with more reason, to the DARIOs who are not even parties to the mortgage name of UNIONBANK.
contract nor to the extrajudicial sale is not necessary.
More importantly, with the main action for reconveyance pending before
In real estate mortgage, when the principal obligation is not paid when due, the RTC, the notice of lis pendens, which despite consolidation remains
the mortgage has the right to foreclose the mortgage and to have the annotated on UNIONBANKs transfer certificate of title subject to the
property seized and sold with a view to applying the proceeds to the outcome of the litigation, sufficiently protects private respondents’ interest
payment of the principal obligation. Foreclosure may be effected either over the property. A transferee pendente lite stands exactly in the shoes of
judicially or extrajudicially. the transferor and is bound by any judgment or decree which may be
rendered for or against the transferor. Once a notice of lis pendens has been
In a public bidding during extra-judicial foreclosure, the creditor-mortgagee, duly registered, any cancellation or issuance of the title of the land involved
trustee, or other person authorized to act for the creditor may participate as well as any subsequent transaction affecting the same, would have to be
and purchase the mortgaged property as any other bidder. Thereafter the subject to the outcome of the litigation. In other words, upon the
mortgagor has one year within which to redeem the property from and after termination of the litigation there can be no risk of losing the property or any
registration of sale with the Register of Deeds. In case of non-redemption, part thereof as a result of any conveyance of the land or any encumbrance
the purchaser at foreclosure sale shall file with the Register of Deeds, either that may be made thereon posterior to the filing of the notice of lis pendens.
a final deed of sale executed by the person authorized by virtue of the power
of attorney embodied in the deed or mortgage, or his sworn statement Q: To what extent will be the right of the highest bidder, as in this case,
attesting to the fact of non-redemption; whereupon, the Register of Deeds Union Bank?
shall issue a new certificate of title in favor of the purchaser after the A: A buyer in a foreclosure sale becomes the absolute owner of the property
owner’s duplicate of the certificate has been previously delivered and if it is not redeemed during the one year redemption period. Consolidation
cancelled. Thus, upon failure to redeem foreclosed realty, consolidation of takes place as a matter of right since there was no redemption of the
title becomes a matter of right on the part of the auction buyer, and the foreclosed property. More so, when the TRO expired upon the dismissal of
issuance of a certificate of title in favor of the purchaser becomes ministerial the complaint. Union bank need not inform the private respondents that it
upon the Register of Deeds. was consolidating its title over the property. Consolidation is a matter of
right as to the highest bidder. Notice to the mortgagor-owner, to the private
DISCUSSION respondents who are not even parties to the parties in the extrajudicial sale
is not necessary. The mortgagee has the right to foreclose the mortgage,
Q: In the filing of the case on Oct. 4, did it stop the one year period from have the property seized and sold, with the view to apply the proceeds to
running? Did it prevent the consolidation of the sale? the principal obligation. The mortgagor has one year to redeem the property
A: No. It did not prevent the consolidation. from the registration of the sale, and upon failure to redeem consolidation
becomes a matter of right on the part of the auction buyer, and the issuance
Q: Would it not prejudice the mortgagor if eventually the annulment of the of the certificate of title in favor of the purchaser becomes ministerial upon
foreclosure sale will be granted? Will the consolidation of the title in the the register of deeds. The consolidation of ownership in favour of Union
name of the highest bidder prejudice the right of the mortgagor owner of Bank and his issuance of new title in its name during the pendency of an
the property in case the annulment of the foreclosure will be granted? action for annulment and reconveyance will not cause irreparable injury to
A: No. THE CONSOLIDATION OF OWNERSHIP OVER THE MORTGAGED the private respondents.
PROPERTY IN FAVOR OF PETITIONER AND THE ISSUANCE OF A NEW TITLE IN After the sale has already taken place, the sheriff will now issue a provisional
ITS NAME DURING THE PENDENCY OF THE ACTION FOR ANNULMENT AND certificate of sale because there is still the 1 year redemption period.
RECONVEYANCE WILL NOT CAUSE IRREPARABLE INJURY TO PRIVATE Thereafter, the sale will be registered in the Registry of Deeds.
RESPONDENTS; THE NOTICE OF LIS PENDENS ANNOTATED ON PETITIONERS
TITLE SUBJECT TO THE OUTCOME OF THE LITIGATION, SUFFICIENTLY How to validly redeem?
PROTECTS THE INTEREST OF PRIVATE RESPONDENTS IN THE PROPERTY.
You must pay within the redemption period as provided under the law. You
To be entitled to the injunctive writ, movant must show that there exists a pay the purchase price plus one percent (1%) interest per month and taxes
right to be protected which is directly threatened by an act sought to be from date of registration of sale until date of redemption. (One percent
enjoined. Furthermore, there must be a showing that the invasion of the because this was the previous legal interest rate. But with the new interest,

` Page 27 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

six percent (6%), legal interest rate effective July 1, 2013, then you apply the Q: Because what is the nature of this writ of possession?
appropriate interest rate effective from that date.) Payment is made to the A: It is ex-parte.
redemptioner or to the sale officer or the sheriff. The written official
redemption must be served on the officer who made the sale and a MALLARI vs. GOVERNMENT SERVICE INSURANCE SYSTEM
duplicate with the Register of Deeds. If no redemption is made, the sheriff
will issue a final certificate of sale. FACTS: In 1968, the petitioner obtained two loans totalling P34, 000.00 from
respondent GSIS. To secure the performance, he mortgaged two parcels of
During the 1 year redemption period or even thereafter, who gets to have land registered under his and his wife Marcelina Mallari’s names. However,
possession of the property? he paid GSIS about ten years after contracting the obligations only P10,
000.00 and P20, 000.00.
G.R. No. 169190 / February 11, 2010
CUA LAI CHU, CLARO G. CASTRO, and JUANITA CASTRO vs. HON. HILARIO L. Nearly three years later (1984), GSIS applied for the extrajudicial foreclosure
LAQUI of the mortgage by reason of his failure to settle his account. He requested
an updated computation of his outstanding account. He persuaded the
Doctrine: The right to possession of a purchaser at an extrajudicial sheriff to hold the publication of the foreclosure to await action on his
foreclosure sale is not affected by a pending case questioning the validity of pending request for final accounting (that is, taking his payments of P30,
the foreclosure proceeding. The latter is not a bar to the former. 000.00 made in 1978 into account). GSIS responded to his request. It finally
commenced extrajudicial foreclosure proceedings against him because he
FACTS: November 1994: Philippine Bank of Communication (respondent) had meanwhile made no further payments.
loaned P3, 200,000 to the petitioners. To secure the loan, petitioners The petitioner sued GSIS (prelim injunction). The RTC decided in his favor,
executed in favor of private respondent a Deed of Real Estate Mortgage. nullifying the extrajudicial foreclosure and auction sale. GSIS appealed to the
August 1997: the mortgage was amended, and the loan was increased by P1, CA, which reversed the RTC. Petitioner elevated the CA decision to this Court
800,000, making the amount P5, 000,000. For failure of petitioners to pay via petition for review on certiorari.
the full amount of the outstanding loan upon demand, private respondent
applied for the extrajudicial foreclosure of the real estate mortgage. This Court denied his petition for review and motion for reconsideration. As
a result, the CA decision became final and executory, rendering unassailable
TRIAL COURT: Granted respondent’s motion for a declaration of general both the extrajudicial foreclosure and auction sale.
default and allowed them to present evidence ex parte.
COURT OF APPEALS: Petitioners appealed. However, it was dismissed since Because of the petitioner’s request for an extension of time to vacate the
the counsel for petitioners failed to indicate the updated PTR Number in the properties, GSIS acceded to the request. Yet, the petitioner did not
said petition, which is a ground for outright dismissal under B.M 1132. The voluntarily vacate the properties, but instead filed a MR and/or to quash the
court held that a proceeding for the issuance of a writ of possession is ex writ of execution and motion to hold GSIS in contempt of court for painting
parte in nature. the fence of the properties during the pendency of his said motion.

ISSUES: Whether the writ of possession was properly issued despite the ISSUE: W/N the petitioner, as defaulting mortgagor, was not entitled under
pendency of a case questioning the validity of the extrajudicial foreclosure Act 3135, as amended, and its pertinent jurisprudence to any prior notice of
sale even when petitioners were declared in default. the application for the issuance of the writ of possession.

HELD/REASON: The Supreme Court held that since the private respondent HELD: No. The petitioner, as defaulting mortgagor, was not entitled under
had purchased the property at the foreclosure sale, their right over the said Act 3135, as amended, and its pertinent jurisprudence to any prior notice of
property became absolute, vesting in it the corollary right of possession. - the application for the issuance of the writ of possession.
Petitioners cannot oppose or appeal the court’s order granting the writ of
possession in an ex parte proceeding. The remedy of petitioners is to have A writ of possession, which commands the sheriff to place a person in
the sale set aside and the writ of possession cancelled in accordance with possession of real property, may be issued in:
Section 8 of Act No. 3135, as amended: SEC. 8. The debtor may, in the
proceedings in which possession was requested, but not later than thirty (1) Land registration proceedings under Section 17 of Act No. 496;
days after the purchaser was given possession, petition that the sale be set (2) Judicial foreclosure, provided the debtor is in possession of the
aside and the writ of possession cancelled, specifying the damages suffered mortgaged property, and no third person, not a party to the foreclosure suit,
by him, because the mortgage was not violated or the sale was not made in had intervened;
accordance with the provisions hereof. (3) Extrajudicial foreclosure of a real estate mortgage, pending redemption
under Section 7 of Act No. 3135, as amended by Act No. 4118; and
PETITION DISMISSED. (4) Execution sales, pursuant to the last paragraph of Section 33, Rule 39 of
the Rules of Court.
DISCUSSION:
Anent the redemption of property sold in an extrajudicial foreclosure sale
Q: How about within the 1 year redemption period can the highest bidder made pursuant to the special power referred to in Section 132 of Act No.
file for a writ of possession even if the 1 year period has not yet lapsed? 3135, as amended, the debtor, his successor-in-interest, or any judicial
A: Yes. Sec. 7 of Act 3135, which provides that there is a need to file for a creditor or judgment creditor of said debtor, or any person having a lien on
bond, but the bond is only required if he wants to possess the property the property subsequent to the mortgage or deed of trust under which the
during the redemption period. property is sold has the right to redeem the property at any time within the
term of one year from and after the date of the sale, such redemption to be
Q: Is there a violation of due process with this petition for writ of governed by the provisions of Section 464 to Section 466 of the Code of Civil
possession when the mortgagors were declared in default? Procedure, to the extent that said provisions were not inconsistent with the
A: No, because after the 1 year redemption period, it is already a ministerial provisions of Act 3135.
duty for the court to issue a writ of possession.
In this regard, we clarify that the redemption period envisioned under Act

` Page 28 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

3135 is reckoned from the date of the registration of the sale, not from and that it is no longer necessary for the purchaser to file the bond required
after the date of the sale, as the text of Act 3135 shows. Although the under Section 7 of Act No. 3135, as amended, considering that the
original Rules of Court (effective on July 1, 1940) incorporated Section 464 to possession of the land becomes his absolute right as the land’s confirmed
Section 466 of the Code of Civil Procedure as its Section 25 (Section 464); owner. The consolidation of ownership in the purchaser’s name and the
Section 26 (Section 465); and Section 27 (Section 466) of Rule 39, with issuance to him of a new TCT then entitles him to demand possession of the
Section 27 still expressly reckoning the redemption period to be "at any time property at any time, and the issuance of a writ of possession to him
within twelve months after the sale;" and although the Revised Rules of becomes a matter of right upon the consolidation of title in his name.
Court (effective on January 1, 1964) continued to provide in Section 30 of
Rule 39 that the redemption be made from the purchaser "at any time The court can neither halt nor hesitate to issue the writ of possession. It
within twelve (12) months after the sale," the 12-month period of cannot exercise any discretion to determine whether or not to issue the writ,
redemption came to be held as beginning "to run not from the date of the for the issuance of the writ to the purchaser in an extrajudicial foreclosure
sale but from the time of registration of the sale in the Office of the Register sale becomes a ministerial function. Verily, a marked distinction exists
of Deeds."36 This construction was due to the fact that the sheriff’s sale of between a discretionary act and a ministerial one. A purely ministerial act or
registered (and unregistered) lands did not take effect as a conveyance, or duty is one that an officer or tribunal performs in a given state of facts, in a
did not bind the land, until the sale was registered in the Register of Deeds. prescribed manner, in obedience to the mandate of a legal authority,
without regard to or the exercise of his own judgment upon the propriety or
Desiring to avoid any confusion arising from the conflict between the texts of impropriety of the act done. If the law imposes a duty upon a public officer
the Rules of Court (1940 and 1964) and Act No. 3135, on one hand, and the and gives him the right to decide how or when the duty shall be performed,
jurisprudence clarifying the reckoning of the redemption period in judicial such duty is discretionary, not ministerial. The duty is ministerial only when
sales of real property, on the other hand, the Court has incorporated in its discharge requires neither the exercise of official discretion nor the
Section 28 of Rule 39 of the current Rules of Court (effective on July 1, 1997) exercise of judgment.
the foregoing judicial construction of reckoning the redemption period from
the date of the registration of the certificate of sale, to wit: The proceeding upon an application for a writ of possession is ex parte and
summary in nature, brought for the benefit of one party only and without
Sec. 28. Time and manner of, and amounts payable on, successive notice being sent by the court to any person adverse in interest. The relief is
redemptions; notice to be given and filed. — The judgment obligor, or granted even without giving an opportunity to be heard to the person
redemptioner, may redeem the property from the purchaser, at any time against whom the relief is sought. Its nature as an ex parte petition under
within one (1) year from the date of the registration of the certificate of sale, Act No. 3135, as amended, renders the application for the issuance of a writ
by paying the purchaser the amount of his purchase, with one per centum of possession a non-litigious proceeding.
per month interest thereon in addition, up to the time of redemption,
together with the amount of any assessments or taxes which the purchaser It is clear from the foregoing that a non-redeeming mortgagor like the
may have paid thereon after purchase, and interest on such last named petitioner had no more right to challenge the issuance of the writ of
amount at the same rate; and if the purchaser be also a creditor having a execution cum writ of possession upon the ex parte application of GSIS. He
prior lien to that of the redemptioner, other than the judgment under which could not also impugn anymore the extrajudicial foreclosure, and could not
such purchase was made, the amount of such other lien, with interest. undo the consolidation in GSIS of the ownership of the properties covered by
TCT No. 284272-R and TCT No. 284273-R, which consolidation was already
Property so redeemed may again be redeemed within sixty (60) days after irreversible. Hence, his moves against the writ of execution cum writ of
the last redemption upon payment of the sum paid on the last redemption, possession were tainted by bad faith, for he was only too aware, being his
with two per centum thereon in addition, and the amount of any own lawyer, of the dire consequences of his non-redemption within the
assessments or taxes which the last redemptioner may have paid thereon period provided by law for that purpose.
after redemption by him, with interest on such last-named amount, and in
addition, the amount of any liens held by said last redemptioner prior to his DISCUSSION:
own, with interest. The property may be again, and as often as a Q: So aside from the fact that the provision of Mallari was denied, what
redemptioner is so disposed, redeemed from any previous redemptioner was ruling of the court?
within sixty (60) days after the last redemption, on paying the sum paid on A: Mallari as a lawyer was guilty of misconduct because he delayed the
the last previous redemption, with two per centum thereon in addition, and proceedings.
the amounts of any assessments or taxes which the last previous
redemptioner paid after the redemption thereon, with interest thereon, and The extrajudicial foreclosure was filed in 1984 but there were several
the amount of any liens held by the last redemptioner prior to his own, with extensions, motions, cases of contempt of court, because as a lawyer,
interest. Mallari would not incur attorney’s fees. Even if it was very clear that the
foreclosure is proper, nevertheless, it was extended up to 2010. The SC
Written notice of any redemption must be given to the officer who made the pointed out that not only was his petition denied but he was also found
sale and a duplicate filed with the registry of deeds of the place, and if any guilty of misconduct.
assessments or taxes are paid by the redemptioner or if he has or acquires
any lien other than that upon which the redemption was made, notice It’s a petition for writ of possession where the property is located and the
thereof must in like manner be given to the officer and filed with the registry nature of this petition is ex-parte. In other words, notice to the mortgagor is
of deeds; if such notice be not filed, the property may be redeemed without not required and it does not violate the right to due process of the
paying such assessments, taxes, or liens. (30a) (Emphasis supplied). mortgagor in this kind of petition. Second, it is ministerial. As long as the
requisites have been complied with.
Accordingly, the mortgagor or his successor-in-interest must redeem the
foreclosed property within one year from the registration of the sale with A writ of possession will be granted when the following requisites are
the Register of Deeds in order to avoid the title from consolidating in the complied with:
purchaser. By failing to redeem thus wise, the mortgagor loses all interest 1. There was an extra judicial foreclosure proceeding;
over the foreclosed property.38 The purchaser, who has a right to 2. petitioner is the highest bidder; and
possession that extends beyond the expiration of the redemption period, 3. that there was consolidation and title was already issued in
becomes the absolute owner of the property when no redemption is made, petitioner’s name.

` Page 29 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

What about if there is a deficiency? such posting at conspicuous public places and we also have the publication
If the sale took place however the proceeds are not sufficient to extinguish wherein failure to comply of these requirements will invalidate the
the obligation, can the creditor mortgagee proceed against the debtor for foreclosure. Let us check the case of Ramirez which emphasizes this notice
the deficiency? -- Not necessarily the mortgagor. Because the mortgagor will requirement.
be the third person and as a third person he cannot be liable for any
deficiency but if you say judicial foreclosure, the mortgagee can still recover JOSE T. RAMIREZ v. THE MANILA BANKING CORPORATIONG.R.
from the deficiency. If will be part of the judgment that if the there is a No. 198800, December 11, 2013
deficiency, the mortgagee may still proceed against the debtor for the Reporter: Guinomla
deficiency. As to extrajudicial foreclosure, under Act 3135, there is no
provision which explicitly states that the debtor will be liable for the Facts: Ramirez obtained a loan from Manila Banking and mortgaged his
deficiency. But the SC has been consistent in its ruling that the mortgagee property. In their contract of mortgage, it was expressly stipulated that:
may still demand from the debtor the deficiency. “All correspondence relative to this MORTGAGE, including demand
letters, summons, subpoenas or notifications of any judicial or
What if there is an excess? extrajudicial actions shall be sent to the MORTGAGOR”
Whether it is a judicial or extra-judicial, foreclosure, if there is an excess, it
Ramirez defaulted in his obligation thus Manila Banking proceeded with the
shall be returned to the mortgagor.
extrajudicial foreclosure of the mortgaged property without giving notice to
Ramirez, contrary to what they have stipulated as mentioned above.
What about if the sale or if the purchase price during the sale is inadequate?
Issue: What is the legal effect of violating an express stipulation of the deed
Under obligations and contract, gross inadequacy of the price will not
of mortgage which requires personal notice to the petitioner–mortgagor by
necessarily invalidate the sale unless there is fraud or other vitiation of
the respondent–mortgagee bank?
consent. In an extra-judicial foreclosure sale or judicial foreclosure sale, if the
price of the thing is grossly inadequate, can the foreclosure sale be rescinded
The extrajudicial foreclosure sale is NULL AND VOID.
on the ground that it is inadequate? Take note it is more liberal when it
comes to redemption. Why? Because with regard to whether it is equity of
Personal notice to the mortgagor in extrajudicial foreclosure proceedings is
redemption—which is before the sale or before the confirmation of the sale,
not necessary because Section 3 of Act No. 3135 only requires the posting of
but essentially with these two foreclosure proceedings, if the price is grossly
the notice of sale in three public places and the publication of that notice in
inadequate, as a general rule, it will not justify the rescission of the sale.
a newspaper of general circulation HOWEVER, if there is an additional
Why? Because if the price is inadequate, it will be in favor of the mortgagor
requirement as to the manner of giving notice as agreed by the parties, IT
redemptioner. So as we have seen in some cases that we have discussed, the
MUST BE COMPLIED WITH, otherwise the extrajudicial foreclosure sale will
loss with be liberally construed in favor of the redemptioner. Exception to
be void.
the exception is if the inadequacy is shocking to the conscience of man. But
unless it can be proven that it is shocking to the conscience, mere
The Act only requires:
inadequacy of the price will not invalidate the sale because it is in favour of
(1) the posting of notices of sale in three public places, and
the redemptioner.
(2) the publication of the same in a newspaper of general circulation.
In relation to foreclosure proceedings, we also have to take note of
Personal notice to the mortgagor is not necessary. Nevertheless, the parties
equitable mortgage provided under Art. 1602 wherein a deed of sale or a
to the mortgage contract are not precluded from exacting additional
deed of sale with right to repurchase or an absolute sale could be deemed as
requirements.
an equitable mortgage. One of the instances provided in Article 1602 is when
the price of the sale with the right to repurchase is unusually inadequate. So
no sale but what we have is an equitable mortgage. So again that would be SECTION 4. The sale shall be made at public auction, between the hours or
in favor of the owner of the property because it would only be subject to a nine in the morning and four in the afternoon; and shall be under the
lien and thereafter we could seek for the reformation. Reformation is the direction of the sheriff of the province, the justice or auxiliary justice of the
remedy here if what was executed was a deed of sale but the intention was peace of the municipality in which such sale has to be made, or a notary
to have that property secure the principal obligation. So the owner of the public of said municipality, who shall be entitled to collect a fee of five
property can seek for reformation of the said contract. Why? There was an pesos each day of actual work performed, in addition to his expenses.
agreement but not deed of sale, only a mortgage.

But what if the mortgagee, based on that pacto de retro sale or deed of SECTION 6. In all cases in which an extrajudicial sale is made under the
absolute sale, will file an action for recovery of possession against the owner special power hereinbefore referred to, the debtor, his successors in
of the property? interest or any judicial creditor or judgment creditor of said debtor, or any
person having alien on the property subsequent to the mortgage or deed
That would be the time that the owner of the property can raise the defense of trust under which the property is sold, may redeem the same at any
that what they had was not a deed of sale or a deed of absolute sale or a time within the term of one year from and after the date of the sale; and
pacto de retro sale but rather an equitable mortgage by showing that there such redemption shall be governed by the provisions of sections four
was a principal obligation and any of the circumstances in Article 1602 are hundred and
present. But with that defense and if it is duly proven, the owner of the
property would still continue in possession of that property and the Q: Does Act 3135 require notice to the mortgagor for the foreclosure sale?
mortgagee would not be entitled thereto but he will be entitled to foreclose A: No Maam.
the property if there is failure to pay the obligation.
Q: So what is the effect of that stipulation?
March 7 – Kaye A: According to the Supreme court, the general rule is that notification is not
required in the foreclosure of properties. However, the parties are not
Last meeting we discussed the relevant provisions with regard to real estate barred to stipulate such in their contract of mortgage. And in case, there is
mortgage in relation to Act 3135. Under the said law, it requires posting and such stipulation, the parties must comply with such.
publication. We have emphasized in our past discussions the relevance of

` Page 30 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Q: So what is the effect of failing to do so? Q: Did Metrobank post the required bond? As you said, as a requirement,
A: Failure to do so will render the foreclosure of the mortgage void. the highest bidder must post a bond. What was the basis of the the SC’s
ruling in favor of Metrobank? Is Metrobank entitled to possession?
Atty Sarona: So again now take note, that under Act 3135, personal notice A: No Maam, no bond was posted by MB
to the mortgagor is not necessary, it only requires the posting of the notice
in conspicuous public places and the publication in a newspaper of general Q: So why as it entitled to possession when no bond was posted? What does
circulation. However, if the parties stipulate that the mortgagor must be Sec 7 of Act 3135 provide?
notified for the foreclosure proceeding as what happened in this case of
Ramirez, then such must be complied with. The respondents have no choice Atty Sarona: Yes that is there is a difference if the possession is prayed for
but to comply with this contractual provision for the contract is still obligated during the redemption period because in that case, bond is required
(? not clear). It’s not really an additional obligation imposed by law. But it is
an obligation by virtue of the contract between the parties. So unless the Q: You said that Metrobank did not post a bond. But why was it that it was
parties stipulate personal notice to the mortgagor in extrajudicial foreclosure still entitled to possession in this case?
proceedings is not necessary. A: Because the RTC denied their application for writ of possession.

We also pointed out last meeting that if there is failure to redeem the Q: What is the effect of the action of the Sps Dulnuan in relation to the
property within the 1 year period, the mortgagee may submit an affidavit of prayer for possession?
consolidation and cancel the old title and a new one will be issued in favor of
the highest purchaser to which after the title has been consolidated, the Atty Sarona: So here even before the redemption period, the highest
highest purchaser will now be entitled to possession thereof. And in fact, purchaser in the foreclosure sale can still be entitled to possession. He can
during the period of redemption, the highest bidder is also entitled to the demand that he be given possession of the same even during but with a
possession. However, it is required to post a bond. bond. After expiration of the redemption period, this time without a bond.
The expiration of the period of redemption shall not preclude the purchaser
Now how about in this case of Sps Dulnuan v Metrobank from taking possession of the property provided that the necessary bond is
posted. The buyer may in fact demand possession of the land even during
SPS. DULNUAN v METROBANK the redemption period except that he has to post a bond.
GR 19864 July 8, 2015
Reporter: Lagat In this case, Metrobank did not actually post a bond. But in its petition for
possession, it manifested its willingness to post a bond. But its application
Facts: for issuance was denied by the RTC. Secondly, the pendency of the action
The Sps entered into a contract of loan with Metrobank. To secure the filed by the Sps stating the validty of the mortgage again does not bar the
obligation, they instituted a real estate mortgage in their property. The issuance of the writ of possession.
spouses defaulted in their obligation so Metrobank sought the extrajudicial
foreclosure of their property wherein it emerged as the highest bidder. After From the FT of the case The pendency of the action assailing the validity of
the lapse of the period of redemption period without the Sps redeeming the mortgage should not bar the issuance of the writ of possession. A
their property, Metrobank sought the consolidation of title in its favor. The pending action for annulment of mortgage or foreclosure does not stay the
Sps opposed such by filing a complaint for annulment of the mortgage issuance of a writ of possession. Regardless of the pendency of such suit, the
contending that consolidation was not proper because it was made during purchaser remains entitled to a writ of possession, without prejudice, of
the redemption period. course, to the eventual outcome of the pending annulment case.

The courts decided in favor of Metrobank stating that in forclosure DARCEN v GONZALES, GR 199747 April 3, 2015
proceedings the highest bidder whether the mortgagee or not is entitled to Reporter: Mangadlao
possession. And during the redemption period, there has to be a bond that Facts
must be issued. The Darcens including the spouse are heirs to parcels of land which they
inherited from their patriarch. The wife, obtained a loan from Gonzales
Issue: WON Metrobank as the highest bidder entitled to possession Credit and mortgaged the inherited properties. Since she was not able to pay
despite non-posting of the bond? her obligation, Gonzales Credit initiated an extrajudicial foreclosure
proceeding on the mortgaged property. There was a console dation of
Yes ownership of the said properties under Gonzales Credit. The heirs were not
It is an established rule that the purchaser in an extra-judicial foreclosure able to redeem the said properties within the redemption period.
sale is entitled to the possession of the property and can demand that he be Thereafter, a writ of possession was issued in favor of Gonzales.
placed inpossession of the same either during (with bond) or after the
expiration (without bond) of the redemption period therefor. 20 The non- CLAIM OF DARCENS: The issuance of the writ of possession possession is
expiration of the period of redemption shall not preclude the purchaser from improper as they are in adverse possession of the property. The issuance of
taking possession of the property provided that the necessary is posted. The the writ shouldn’t have been ministerial. Thus the Darcens filed an action for
buyer can in fact demand possession of the land even during the redemption
the annulment of the writ.
period except that he has to post a bond in accordance with Section 7 21 of
Act No. 3135, as amended. In the case at bar, Metrobank manifested its
ISSUES:
willingness to post a bond but its application for the issuance of the writ of
1. Whether or not it is ministerial for the court toissue a writ of possession
possession was unjustly denied by the RTC.
after consolidation of the ownership of the property in the name of the
buyer.
Q: So in this case, was the possession prayed for by Metrobank made during
the period of redemption? YES. The long-settled rule in extrajudicial foreclosure ofreal estate mortgage
A: Yes Maam is that after consolidation of ownership of the foreclosed property, it is the
ministerial duty of the court to issue, as a matter of right, an ex parte writ of
possession to the buyer.

` Page 31 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

provisions hereof, and the court shall take cognizance of this petition in
The established rule is that the purchaser in an extrajudicial foreclosure sale accordance with the summary procedure provided for in section one
becomes the absolute owner of the property if no redemption is made hundred and twelve of Act Numbered Four hundred and ninety-six; and if it
within one (1) year from the registration of the certificate of sale by those finds the complaint of the debtor justified, it shalldispose in his favor of all
who are entitled to redeem. Possession being a recognized essential or part of the bond furnished by Either of the parties may appeal from the
attribute of ownership, after consolidation of title the purchaser may order of the judge in accordance with section fourteen of Act Numbered
demand possession as a matter of right.29 Under Section 7 of Act No. 3135, Four hundred and ninety-six; but the order of possession shall continue in
as amended by Act No. 4118, the issuance of the writ is merely a ministerial effect during the pendency of the appeal.
function of the RTC, which the new owner may obtain through an ex parte
motion. Section 9. When the property is redeemed after the purchaser has been
given possession, the redeemer shall be entitled to deduct from the price
The possession may be granted to the buyer either of redemption any rentals that said purchaser may have collected in case
(a)within the one-year redemption period, upon the filing by the purchaser the property or any part thereof was rented; if the purchaser occupied the
of a bond, or property as his own dwelling, it being town property, or used it gainfully, it
(b) after the lapse of the redemption period, without need of a bond. being rural property, the redeemer may deduct from the price the interest
of one per centum per month provided for in section four hundred and
2. Whether or not a pending action for the annulment of the writ stays the sixty-five of the Code of Civil Procedure.
issuance of the writ of possession.
Q: What’s the significance of adverse possession in relation to the petition
NO. for writ of possession?
As a GENERAL RULE: A: Here Maam, as an exception to the general rule is in an adverse
It is settled that a pending action for annulment of mortgage or foreclosure possession of a third person, the issuance of a writ of possession will cease
sale does not stay the issuance of the writ of possession. The trial court, to be a ministerial duty of the courts?
where the application for a writ of possession is filed, does not need to look Q: Who are in possession of the property?
into the validity of the mortgage or the manner of its foreclosure. The A: The Darcens
purchaser is entitled to a writ of possession without prejudice to the Q: Are they considered possessors having adverse rights to the morgagors?
outcome of the pending annulment case. A: Here Maam, they failed to establish that they are the adverse parties
Q: By what right then are they possessing the property?
As an EXCEPTION: A:
The ministerial duty of the court to issue an ex parte writ of possession Q: Who are they, by the way?
ceases once it appears that there is a third party in possession of the A: They are the children of mortgagor
property, who is a stranger to the mortgage and who claims a right adverse Atty Sarona: So therefore, they are not adverse 3rd parties because being
to that of the debtor/ mortgagor. successors in interest, the right emanate from the mortgagor not adverse to
the said mortgagor . therefore, we apply the general rule that the issuance of
For the EXCEPTION TO APPLY: the writ of possession is ministerial
The property need not only be possessed by a third party, but also held by So here, not even the annulment of mortgage will stay the execution of the
the third party adversely to the debtor/mortgagor. writ of possession. Again, as a general rule, it is a ministerial duty of the
court to issue an ex-parte writ for possession.
Basis: As an exception, such ministerial duty ceases when it appears that there is a
Section 33, Rule 39 of the Rules of Court provides that in an execution sale, 3rd party in possession of the property who is a stranger to the mortgage and
the possession of the property shall be given to the purchaser or last whose rights are adverse to the debtor or mortgagor.
redemptioner, unless a third Case at bar
party is actually holding the property adversely to the judgment obligor. So in this case, there is no proof that the petitioners are adverse 3rd party
claimants. There is also no evidence that their right emanate from another
The application of the above Section has been extended to extrajudicial owner adverse to the mortgagor. In fact, it was established that they were
foreclosure sales pursuant to Section 6 of ActNo. 3135, to wit: heirs or successors in interest of the said mortgagors. And therefore, they
are bound by the said mortgage. And they cannot question the issuance of
Sec. 6. In all cases in which an extrajudicial sale is made under the special writ of possession by the courts. It is its ministerial duty.
power hereinbefore referred to, the debtor, his successors in interest or any
judicial creditor or judgment creditor of said debtor, or any person having SPS GATUSLAO v YANSON, GR 191540 August 26, 2014
alien on the property subsequent to the mortgage or deed oftrust under Reporter: Campaner
which the property is sold, may redeem the same at any time within the
term of one year from and after the date of sale; and such redemption shall Facts: The wife here Erlinda Gatuslao was the daughter of late Limsiaco who
be governed by the provisions of section four hundred and sixty-four to was the original owner of the parcel of land. Limsiaco, during his lifetime
fourhundred and sixty-six, inclusive, of the Code of CivilProcedure, in so far mortgage the herein properties that are subject of the complaint to PNB.
as these are not inconsistent with the Due to Mr Limsiaco’s failure to pay the obligation, PNB extrajudicially
provisions of this Act. foreclosed the property and subsequently it emerged as the highest bidder.
After the lapse of the 1 year redemption period, the estate of Limsiaco did
In this case, the DARCENS, were not able to prove that they are adverse not redeem the property. PNB caused the consolidation of the titles in its
party claimants thus the issuance of the writ may be done ministerially. favor.

Section 8. The debtor may, in the proceedings in which possession was Without a writ of possession being issued in favor of PNB, PNB sold the
requested, but not later than thirty days after the purchaser was given properties to respondent Yanson. So Yanson filed a complaint before the RTC
possession, petition that the sale be set aside and the writ of possession for an ex-parte motion for writ of possession. So the petitioner (heirs of
cancelled, specifying the damages suffered by him, because the mortgage Limsiaco) intervened contending that the respondent is not entitled to the
was not violated or the sale was not made in accordance with the issuance of ex-parte writ of possession because it should be PNB(the

` Page 32 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

predecessor and seller of Yanson) that is entitled to such. Here, as Limsiaco’s successor’s in-interest, Petitioners merely stepped into
the shoes of and compelled not only to acknowledge but also to respect the
RTC granted the writ in favor of the Yansons mortgage that it had earlier executed in favor or respondent. Not being 3rd
parties who have a right contrary to that of the mortgagor, the trial court is
Issue: WON the subsequent buyer of the property is entitled to the issuance justified in issuing the writ. So the writ of possession may be issued ex-parte.
of the writ of possession And being ex-parte, no notice is required to be issued to the petitioners who
are in possession of the subject property. The ex-parte nature of the
Respondent is entitled to the issuance of writ of possession. proceedings does not deny due process to the petitioners because the
issuance of the same does not prevent a separate case for annulment of
Petitioners insist that respondent is not entitled to the issuance of the writ of mortgage and foreclosure sale. The court may grant the petition even
possession under Section 7 of Act No. 3135 as he is only a buyer of the without the petitioner’s participation.
subject properties in a contract of sale subsequently executed in his favor by
the actual purchaser, PNB. To them, it is only the actual purchaser of a Case at bar: The record show that the petitioners were able to be heard or
property at the public auction sale who can ask the court and be granted a were actually heard on their side of the controversy so there is no violation
writ of possession. of due process. With regard to the right of respondent, remember, Yanson
was not the highest bidder at the foreclosure sale. It was PNB. And PNB sold
This argument is not tenable. Respondent, as a transferee or successor-in- the same to the respondent. As transferee or successor in-interest of PNB,
interest of PNB by virtue of the contract of sale between them, is considered respondent is to be considered to also step into the shoes of PNB and
to have stepped into the shoes of PNB. As such, he is necessarily entitled to necessarily entitled to avail of the provisions of Sec 7 of Act 3135.
avail of the provisions of Section 7 of Act No. 3135, as amended, as if he is
PNB. This is apparent in the Deed of Absolute Sale 46 between the two, viz.: One of the rights that can be applied as a purchaser is that it could validly
convey by way of its subsequent sale of the same to respondent in the
1. The Vendor hereby sells, transfer[s] and convey[s] unto [and] in availment of the writ of possession.
favor of the Vendee, and the latter's assigns and successors-in-
interest, all of the former's rights and title to, interests and OKABE v SATURNINO; GR 196040 August 26, 2014
participation in the Property on an "AS IS, WHERE IS" basis. It is thus Reporter: Borbe
understood that the Vendee has inspected the Property and has
ascertained its condition. Facts: The subject of this case is a 81 sq. m. property that was donated in
Makati. The said property was registered in the same of the wife of Ernesto
2. The Vendor is selling only whatever rights and title to, interests and Saturnino, respondent.
participation it has acquired over the Property, and the Vendee
hereby acknowledges full knowledge of the nature and extent of the The Sps Saturnino obtained a loan from PNB and the loan was secured by the
Vendor's rights and title to, [and] interests and participation in the said property. However, they failed to settle their loan obligation. So PNB
Property. consolidated the property. The Spss were not able to redeem the property
during the redemption period .
3. The Vendee further agrees to undertake, at its/his/herexpense, the
ejectment of any occupant of the Property. PNB, without taking possession of the property sold it to Fe Okabe,
(Emphases in the original) petitioner. Petitioner now filed an ex-parte issuance of a writ of possession
of the subject property. However, this was opposed by Saturnino(mortgagor
Verily, one of the rights that PNB acquired as purchaser of the subject debtor)
properties at the public auction sale; which it could validly convey by way of
its subsequent sale of the same to respondent, is the availment of a writ of RTC ruled in favor of Okabe. It held that the issuance of a writ is a ministerial
possession. This can be deduced from the above-quoted stipulation that duty of the court
"[t]he [v]endee further agrees to undertake, at . . . his expense, the
ejectment of any occupant of the [p]roperty." Accordingly, respondent filed Issue: WON an ex-parte petition for the issuance of a writ of possession
the contentious ex parte motion for a writ of possession to eject petitioners was the proper remedy of the petitioner in obtaining possession of the
therefrom and take possession of the subject properties. subject property.

Held: YES. Purchaser in the foreclosure sale may apply for a writ of
Q: Who filed for the petition for writ of possession? possession during the redemption period, 30 upon an ex parte motion and
A: Yanson, the subsequent purchaser of PNB (the highest bidder) after furnishing a bond. I n GC Dalton Industries, Inc. v. Equitable PCI Bank,
31 the Court held that the issuance of a writ of possession to a purchaser in
Q: Was the petition of writ of possession properly filed even if Mr Yanson an extrajudicial foreclosure is summary and ministerial in nature as such
was not the highest bidder during the foreclosure sale? proceeding is merely an incident in the transfer of title. Also, in China
A: Yes Maam. The SC said that the R is entitled to a writ of possession Banking Corporation v. Ordinario, 32 we held that under Section 7 of Act No.
because of the following reasons 3135, the purchaser in a foreclosure sale is entitled to possession of the
1. PNB(it’s predecessor is entitled to such possession property.
2. Due to the transfer of ownership(sale) from PNB to respondent
Yanson, the latter acquired all the rights of PNB Case at Bar: Here, petitioner does not fall under the circumstances of the
aforequoted case and the provisions of Section 7 of Act No. 3135, as
amended, since she bought the property long after the expiration of the
Atty Sarona: This emphasized that the petition for writ of possession
redemption period. Thus, it is PNB, if it was the purchaser in the foreclosure
remains to be ex-parte in nature. And the duty of the courts is a ministerial
sale, or the purchaser during the foreclosure sale, who can file the ex-parte
duty to issue the same as long as the ones in possession are not strangers or
petition for the issuance of writ of possession during the redemption period,
third party to the foreclosure sale.
but it will only issue upon compliance with the provisions of Section 7 of Act
No. 3135.

` Page 33 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Q: So is Okabe entitled to the writ of possession? When the Sps defaulted in their payments, PCLC extrajudicially foreclosed
A: It is only required when the third person is an adverse possessor. the mortgage in accordance with Act 3135. PCLC emerged as the highest
bidder. So a certificate of sale was issued to them. And the same was
Q: What do you mean by adverse possessor? registered. Sps. Guevara failed to redeem within 1 year so a new TCT was
A: Because in this case, Okabe brought the property from PNB, hence Okabe issued to PCLC. When PCLC applied for writ of possession, the Sps opposed
was subrogated the rights of PNB to file the writ of possession. the same . The challenged the validity of the foreclosure contending that
PCLC failed to observe the proper procedure. And they also assailed the
Atty Sarona: So take note the general rule for the issuance or writ of issuance of the final deed of sale saying that it is premature since they are
possession. It is ministerial in nature. With regard to the court, it must issue still entitled to redeem the property within 5 years from the expiration of the
the writ of possession provided that the following requisites are present. 1 year redemption period.
1. Foreclosure sale
2. The petitioner who is the highest bidder in the foreclosure sale So the Sps Guevara filed an action for redemption maintaining that they still
3. Title has been consolidated and registered in his name have 5 years to redeem the property .

RTC while it granted the writ of possession and notice to vacate in favor of
When all of those are duly presented, then the court has the ministerial duty
TCLC, it also granted the petition in the cadastral case filed by the Sps
to issue the writ of possession. Moreover, the proceeding is ex-parte. So
Guevara. The RTC also recognized the right to repurchase of the Sps within
there is no need for the participation of motgagor or his heirs or any party in
the 5 year period provided under Sec 119 of the Public land act(CA 141)
possession thereof whose title is not adverse to that of the debtor
mortgagor.
Issue: What is the correct redemption period that must be followed?
However, take note the SC further noted that the remedy of the writ of
possession that is available to the mortgagee is made available to its
Lending/ Credit Institution has 1 year
subsequent purchaser.
In an extra-judicial foreclosure of registered land acquired under a free
Is hearing required?
patent, the mortgagor may redeem the property within two (2) years from
IT DEPENDS
the date of foreclosure if the land is mortgaged to a rural bank under
Hearing is required to determine who is in possession of the property. Unlike
Republic Act No. (RA) 720, 41 as amended, otherwise known as the Rural
if the purchaser is the mortgagee or 3rd party during the redemption period
Banks Act, or within one (1) year from the registration of the certificate of
wherein a writ of possession may issue ex-parte or without hearing.
sale if the land is mortgaged to parties other than rural banks pursuant to
HEARING IS REQUIRED
Act No. 3135. 42 If the mortgagor fails to exercise such right, he or his heirs
1. Acquired by 3rd party
may still repurchase the property within five (5) years from the expiration of
2. After redemption period
the aforementioned redemption period 43 pursuant to Section 119 of the
Public Land Act, which states:
If the purchaser is a third party who acquired the property after the SEC. 119. Every conveyance of land acquired under the free patent
redemption period, a hearing is conducted to determine whether who is in or homestead provisions, when proper, shall be subject to
possession of the subject property is still the mortgagor or is already in the repurchase by the applicant, his widow, or legal heirs, within a
possession of a 3rd party holding the property adverse to the defaulting period of five years from the date of the conveyance.
debtor or mortgagor.
Why? Case at bar:
Because if it is in possession of the mortgagor, then a writ of possession can In this case, the subject property was mortgaged to and foreclosed by TCLC,
be issued. which is a lending or credit institution, and not a rural bank; hence, the
But if it is in possession of a third person whose title is adverse to the redemption period is one (1) year from the registration of the certificate of
mortgagor, the issuance of the writ of possession is not proper. sale on August 25, 2000, or until August 25, 2001. Given that Sps. Guevarra
What is the remedy here of the subsequent purchaser? failed to redeem the subject property within the aforestated redemption
File an action for ejectment. period, TCLC was entitled, as a matter of right, to consolidate its ownership
1. Unlawful detainer and to possess the same. 44 Nonetheless, such right should not negate Sps.
2. Recovery of possession: if it is more than 1 year na Guevarra's right to repurchase said property within five (5) years from the
expiration of the redemption period on August 25, 2001, or until August 25,
Between the action for ejectment and the writ of possession, mas mabilis 2006, in view of Section 119 of the Public Land Act as above-cited.
talaga ang writ of possession kasi nga it’s ministerial and ex-parte. But you
have to take into possession, who is in possession of the property. Q: So what is the redemption period in this case? Is it 1 year or 2 years?
So there is no inconsistency between the case of Gatuslao and the present A: 1 year Maam because TCLC is a credit institution and not a Rural Bank. So
case of Okabe. The SC here just elucidated that hearing is needed to the Sc also said that after the expiration of the 1 year period, PCL also have
determine who is in possession thereof .If the one in possession does not the right but such should not negate the right of the Sps to redeem within
hold the property adverse from the mortgagor. When we say adverse, his the 1 year period
right does not emanate from the mortgagor. Example he purchased or
inherited it from another person or the tenants under the tenancy laws. In Q: Counted from the?
these case, the remedy is not a writ of possession. You really have to file an A: Counted from August 25, 2005 or until August 25, 2006
action for ejectment whether it is summary or more than 1 year.
Q: August 25, 2005 is what?
SPS GUEVARA v THE COMMONER LENDING ; GR 204672 A: It is the registration of the certificate of sale
Reporter: Del Rosario
Q: How about the contention with regard to the purchase price? What was
Facts: Sps Guevara obtained a 320k loan from PCLC which was secured by a the ruling of the court?
real estate mortgage over a land situated in Iloilo from a free patent granted
to them.

` Page 34 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

From the FT of the case regarding the Purchase price that the creditor can receive the fruits and apply the same to the interest yet
The Court has, however, ruled 56 that redemptions from lending or credit owing and thereafter to the principal. Normally, the contract of antichresis
institutions, like TCLC, are governed by Section 78 57 of the General Banking covers all the fruits of an immovable property but the parties can stipulate
Act(now Section 47 of the General Banking Law of 2000), which amended otherwise.
Section 6 of Act No. 3135 in relation to the proper redemption price when
the mortgagee is a bank, or a banking or credit institution. 58 Do not confuse antichresis for pledge. While both are contracts of security
and in both instances, the debtor loses control over the property, they admit
Nonetheless, the Court cannot subscribe to TCLC's contention that it is of several differences:
entitled to its total claims under the promissory note and the mortgage
contract 59 in view of the settled rule that an action to foreclose must be Antichresis vs. Pledge
limited to the amount mentioned in the mortgage. Hence, amounts not ANTICHRESIS PLEDGE
stated therein must be excluded, like the penalty charges of three percent
(3%) per month included in TCLC's claim. 61 A penalty charge is likened to a As to subject Real property Personal property
compensation for damages in case of breach of the obligation. Being penal in matter
nature, it must be specific and fixed by the contracting parties. As to the kind of It is a formal contract It is a real contract
contract which requires to be in wherein delivery is
Moreover, the Court notes that the stipulated three percent (3%) monthly writing in order to be required for its
interest is excessive and unconscionable. In a plethora of cases, the Court perfected. perfection.
has affirmed that stipulated interest rates of three percent (3%) per month
and higher are excessive, iniquitous, unconscionable, and exorbitant Antichresis vs. Mortgage
ANTICHRESIS MORTGAGE
Atty Sarona: I gave you this case because you have here a different
As to delivery Subject matter is delivered to Delivery is not required
redemption period. While we have the general rule under Act 3135 , we also
the creditor not for the or possession of the
have to take into consideration if what was foreclosed is a registered land
perfection thereof but for the property to the
under a free patent. So redemption period is:
creditor to apply the fruits to mortgagee
1. Rural bank = 2 years
the obligation
2. Otherwise=apply Act 3135 ; 1 year from the registration of the As to the right The creditor acquires no real Creates real rights
sale to the fruits right to receive the fruits of although the mortgagee
the property. or creditor although the
However, there is an addition of 5 years. The 5 years should be counted from mortgagee does not
the expiration of the redemption period. have rights to receive
What is this 5 years? the fruits unless agreed
The right to repurchase on the part of the mortgagor within the said period upon.
This is because the land here was acquired through a free patent and the As to the Creditor is obliged to pay the Such obligation is not
applicable law is Sec 119 of the Public Land Act. obligation to taxes and charges upon the present in mortgage.
In the case at bar, the Sps Guevara had until Aug 26, 2006 to redeem the pay taxes and estate unless there is a
property. The tender of purchase price is not necessary for the preservation charges upon stipulation to the contrary.
of the right because in this case they filed the action within the 5 day period. the estate
So that is already a formal offer to redeem. Since it was entitled to redeem, As to the The creditor shall apply the No such obligation exists
the court also took into consideration that the PCLC(mortgagee) does not application of fruits to the interest if owing in a mortgage.
have the freedom to determine the price. the fruits to then thereafter apply to the
As emphasized by the courts, PCLC is entitled to its claims as provided in the the interest principal obligation.
promissory note and the mortgage contract in view of the settled rule that
the action to foreclose must be limited to the amount of the mortgage. So Now let’s go to the case of Alojado.
exclude ang penalty charge
Ang interest pwede ba? ALOJADO VS. SIONGCO
Yes but the SC said in this case that the 3% interest was excessive and GR 27084, December 31, 1927
unconscionable. And so it was reduced to 1 % per month.
Facts: Mabaquiao sold a parcel of land to Alegata for P7,744. The land was
March 9 – del Rosario included in the settlement of his estate thus was adjudicated to hs only
heirs, Lim Eng Teeng and Lim Kang Sang. They sold it to Lim Ponso & Co.
Chapter 4: ANTICHRESIS with the right to repurchase for the period of 1 year which expired without
the right being exercised. Lim Ponso & Co. transferred this land
Antichresis is a contract of real security. unconditionally to Siongco and Kingko.

Art. 2132. By the contract of antichresis the creditor acquires the right to Alojado, as the administrator of Mabaquiao, brings this action against
receive the fruits of an immovable of his debtor, with the obligation to Siongco, Kingko and Lim Ponso & Co. and prays that he be declared the
apply them to the payment, of the interest, if owing, and thereafter to the absolute owner of this land with the improvements thereon, and that the
principal of his credit. defendants be ordered to restore and respect his right of ownership,
possession and usufruct of the property; and, moreover, that other
It is an accessory contract. It secures the performance of the principal pronouncements be made as prayed for in his complaint. The court absolved
obligation and it is very clear under Art. 2132 that it is also a nominate the defendants from the complaint and plaintiff appealed from this
contract. judgment.

Take note: delivery of the property of the immovable to the creditor is not Alojado contends that the contract executed by Mabaquiao and Alegata was
necessary for the perfection of antichresis. However, delivery is required so not a contract of sale with the right to repurchase, but a contract of

` Page 35 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

antichresis. Again, for an antichresis to exist, there must be an express agreement


entered into by the creditor and the debtor, that the creditor, having been
Issue: Is the contract executed by Mabaquiao and Alegata a contract of given the possession of a property as security, is to apply the fruits to the
antichresis? payment of the interest if owing, and thereafter to the principal to the credit.

Ruling: Art. 2133. The actual market value of the fruits at the time of the
THE CONTRACT IS THAT OF SALE WITH A RIGHT OF REPURCHASE. It clearly application thereof to the interest and principal shall be the measure of
talks about a sale and the conveyance of land with the right to repurchase, such application.
and the character of the contract is that of a sale with the right to
repurchase. But, examining it as a whole, it clearly appears that it was the Take note here: market value at the time the fruits will be applied to the
parties' intention that the vendor could repurchase the land without delay obligation. Not the market value at the time of the perfection of the
when he had the means to pay the purchase price. antichresis.

CONTRACT OF ANTICHRESIS IS ONE WHERE THE CREDITOR ACQUIRES THE The purpose of the provision is to forestall the use of antichresis for usury.
RIGHT TO RECEIVE THE FRUITS OF THE PROPERTY OF HIS DEBTOR WITH THE Notwithstanding that the usury law has been suspended, you still apply the
OBLIGATION TO APPLY THEM TO THE PAYMENT OF INTEREST, IF ANY ID same provision. <stopped at 10:16>
DUE AND THEN TO THE PRINCIPAL OF HIS CREDIT.
Now take note of Article 2134.
Nowhere in the contract in question does the character of antichresis
appear. Art. 2134. The amount of the principal and of the interest shall be specified
in writing; otherwise, the contract of antichresis shall be void.
Dela Vega s. Ballilos - while the contract is called mortgage by the parties,
the court held that it is really a contract of antichresis. The contract This is the basis of the perfection of a contract of antichresis which must be
stipulated that the debtor assigned and transfer the ownership and in writing in order to be valid.
possession of the land to the creditor for his management and enjoyment as
a profit from the amount for which it had been mortgaged. What happened in the case of Barretto?

THE RIGHT OF REDEMPTION NOT HAVING BEEN EXERCISED WITHIN THE BARRETTO VS. BARRETTO
PERIOD OF 10 YEARS, THE TITLE OF ALEGATA, OR HIS HEIRS HAS BEEN GR No. L-11933, December 1, 1917
CONSOLIDATED. The action was brought in January 1922, 15 years after the
contract was entered into. The contract provided that the redemption will be Facts: Alberto Barretto claims a portion of land part of Balintagac hacienda
until Juana Mabaquiao, or her heirs has the means. Whether or not this is as being his, together with its fruits or their value, and also of a lot situated
considered a period, it is clear that the title transmitted to Nicolas Alegata in the same hacienda together with the rents. He claims that Leonardo
has been consolidated, According to article 1508 of the Civil Code, when no Barretto is said to have usurped a portion of land of the hacienda and has
period of redemption is fixed it shall last four years, and if it is fixed, it shall been receiving 2/3 of the fruits therein. He refused to return the fruits
not exceed ten years. The right of redemption not having been exercised received, or their value in spite of the fact that he has been required to do so
within the period of ten years, the title of Nicolas Alegata, or his heirs, has by in writing by the plaintiff Alberto.
this fact alone been consolidated at any events.
The counsel of Leonardo denied the allegations and alleged that his client is
in possession of the said lot as its true owner.
Q: What is the period applicable to the right of repurchase? What was the
agreement of the parties regarding the right to repurchase? When can it be In the complaint of intervention, it was alleged that the hacienda was owned
repurchased? and possessed by Juan Antonio Barretto, Sr. He had 8 children (1) Juan
A: When she has the means. Under obligations and contracts it is an Antonio Barretto, (2) Angelica Maria Barretto, (3) Leonardo Barretto, (4)
obligation with a period. Fransisca Barretto, (5) Bartolome Barretto, (6) Jose A Barretto, (7) Leopoldo
Barretto — who succeeded him.
Q: So applying the law in sales in the period of redemption, what it the
applicable period here? The heirs are at present in possession of the same through their agents and
A: The period shall not exceed 10 years. representatives. The intervenors deny that Alberto Barreto is the owner of
any part of the hacienda.
When it comes to civil law do not forget to relate it to your other civil
subjects. In this case, you can relate it to obligations and contracts and with The records show that Antonio Vicente Barretto as creditor and mortgagee
regard to sale, redemption. of the hacienda, was not able to collect his credit of P11,000 nor obtain the
adjudication in his favor of half of the hacienda which was mortgaged for the
For an antichresis to exist, the parties must agree that the creditor has the security of the debt. He took possession of the said hacienda by virtue of the
right to receive the fruits of the property with the obligation to apply them voluntary assignment with the express consent of the heirs of the late Juan
to the payment of the interest. No such intention exists in Alojado. What is Antonio Barretto, Sr.
clear is that there was an agreement with the right to repurchase in which
Juana could repurchase the land when she had the means. With that, it has Since 1888-1889, once the foreclosure proceedings brought about the
been 15 years after the contract was entered into and no right to repurchase creditor Antonio Vicente Barrte against Juan Antonio Barretto, Jr. were
was exercised. suspended, the creditor took possession of the hacienda and held it in
usufruct with the knowledge and express consent of its legitimate owners;
If no period was fixed it shall last 4 years. Because of the phrase “when she thus there has not been any opposition or protest against the possession
had the means,” we already know that that refers to a period, the period of which by usufruct the creditor and his successors enjoyed, aside from the
redemption should not exceed 10 years. Since the period of 10 years has usurpation of 2 small portions of that property done by Leonardo Barretto in
already lapsed, the right to repurchase the property is not available anymore. 1912.

` Page 36 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

The possession and usufruct enjoyed was done by a verbal contract entered
by the owners of the hacienda and the creditor Antonio Vicente Barretto. Q: Was there a contract in writing for this antichresis to exist?
Since it is not shown that the debtors have delivered the whole hacienda to A: No. It was verbal.
the creditor by assignment of the property in payment of the debt.
Q: So how do you reconcile that with Art. 2134?
Issue: Is the contract that of antichresis? A: It applied the old Civil Code, specifically Art. 1881 which provides: “By
antichresis a creditor acquires a right to receive the fruits of real property of
Ruling: IT IS AN ANTICHRESIS. In spite of the fact that the agreement his debtor, with the obligation to apply them to the payment of the interest,
between the creditor and the debtors was not in writing, due to the if due, and afterwards to the principal of his credit.”
relationship that they have, it may safely be assumed that the debtors have
limited themselves to give to the creditor the right to collect his credit from Q: Why can’t Art. 2134 be applied? Why is it in this case, the contract was
the fruits of the hacienda of Balintagac. As he was given the possession of still considered as a contract of antichresis?
the property, but the dominion of which was not transferred to him. A: Because it is a 1917 case. Art. 2134 is a new provision in the New Civil
Art. 1881 provides: Code which was effective on August 30, 1950.
“By antichresis a creditor acquires a right to receive the fruits of
real property of his debtor, with the obligation to apply them to Take note that before the new civil code the contract of antichresis was
the payment of the interest, if due, and afterwards to the informal. Now, it is formal as it is required that it be in writing.
principal of his credit.”
The possession of the Balintagac hacienda was taken by voluntary
ALTHOUGH ART. 1884 PROVIDES THAT THE CREDITOR DOES NOT ACQUIRE assignment with the express consent of the heirs of the debtor. The
THE OWNERSHIP OF THE PROPERTY DELIVERED BY VIRTUE OF AN agreement they entered into was a contract of antichresis. The debtors have
ANTICHRESIS, ART. 1883 PROVIDES THAT THE DEBTOR CANNOT RECOVER limited themselves to give to the creditor the right to collect his credit from
THE USE OF IT. The debtor must first fully pay the creditor, who in case of the fruits of the hacienda – there was no transfer of ownership.
insolvency may ask for the sale of the real property which he possesses.
Since this is an old case, the ruling of the court was that the agreement or
Since it is not shown that the debtors have delivered the whole hacienda to the verbal stipulation which lead to the facts proved deserves in law the
the creditor by assignment of the property, it is to be presumed that the name of antichresis. But again, reconcile that with Art. 2134 which is a new
debtors delivered not only one half, but the whole hacienda with a view that provision in the Civil Code. With the effectivity of the New Civil Code, a
the creditor might collect by usufruct his credit with the accrued interests. contract of antichresis must be in writing wherein the amount of the
principal with interest are clearly specified, otherwise, it shall be void.
In spite of the fact that the agreement between the creditor and the debtors
was not set down in any document, due to the relationship which exists How about in the case of Bangis?
between them, it may safely be asserted that the debtors have limited
themselves to give to the creditor the right to collect his credit from the BANGIS VS. HEIRS OF SERAFIN
fruits of the hacienda of Balintagac, conferring upon him the possession of GR 190875, June 13, 2012
the property, but not transferring to him the dominion of the same, since
such transfer was not proved in the present action. Facts: Spouses Serafin, Sr. and Saludada Adolfo were the original registered
owners of a lot which was mortgaged to the DBP. Upon default in the
THE AGREEMENT OR VERBAL STIPULATION IS AN ANTICHRESIS AS DEFINED payment of the loan obligation, it was foreclosed and ownership was
BY ARTICLE 1881 OF THE CIVIL CODE, TO WIT: consolidated in DBP’s name under a TCT. Serafin Adolfo, Sr. repurchased the
By the antichresis a creditor acquires a right to receive the fruits of real same and was issued a TCT a year after his wife died. He allegedly mortgaged
property of his debtor, with the obligation to apply them to the payment of the subject property to Ancieto Bangis who took possession of the land but
the interest, if due, and afterwards to the principal of his credit. their transaction was not reduced into writing. When Adolfo died, his heirs
executed a deed of extrajudicial partition covering the subject property and
The perusal of articles 1882-1886 shows that the possession of the hacienda TCT issued to them. The said property was subdivided and separate titles
enjoyed by the creditor Antonio Vicente and his successors up to the present were issued in names of the heirs of Adolfo. The heirs of Adolfo filed a
time was conferred to them by virtue of the stated contract or agreement in complaint for annulment of the deed of sale and declaration of the
antichresis. One of the administrators of the hacienda presented the sworn purported contract of sale as antichresis, accounting and redemption of
declaration of ownership for the purposes of tax assessment and paid the property and damages against Bangis. The RTC rendered a decision in favor
land tax in the name of the creditor who possessed and held the hacienda in of the heirs of Adolfo declaring that the contract as an antichresis, ordering
usufruct. the defendant to deliver the possession of the property in question to the
plaintiffs and the TCT under Bangis as null and void. Thus, the heirs of Bangis
Although article 1884 states that the creditor does not acquire through appealed before the CA.
possession the ownership of the real property delivered by virtue of an
antichresis for failure to pay the debt within the stipulated time, CA affirmed the RTC finding that the contract between the parties was a
nevertheless, the debtor cannot recover the use of the real property given in mortgage, not a sale. It noted that while Bangis was given possession of the
antichresis to the creditor, without previously subject property, the certificate of title remained in the custody of Adolfo
and was never cancelled.
Alberto being in the legitimate possession and use of all the hacienda of
Balintagac which was voluntarily delivered to him by Juan Antonio, Jr. and Issue: Whether the agreement entered into by the parties is that of
his co-heirs, with the object that the creditor Antonio Vicente might collect antichresis?
the capital and interests which they owed and still owe him — a lawful
contractual act called by law a covenant in antichresis — the debtors cannot, Ruling:
while the debt exists and is not fully paid, recover or reacquire the THERE NEITHER AN ANTICHRESIS NOR A SALE. For the contract of
possession and use of the real property delivered to the creditor, without antichresis to be valid, Article 2134 of the Civil Code requires that “the
the latter giving his consent amount of the principal and of the interest shall be specified in writing;

` Page 37 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

otherwise the contract of antichresis shall be void.”


The creditor is bound to pay the expenses necessary for the preservation and
In this case, the Heirs of Adolfo were indisputably unable to produce any repair of the property. Any sum spent for these purposes are deducted from
document in support of their claim that the contract between Adolfo and the fruits.
Bangis was an antichresis, hence, the CA properly held that no such
relationship existed between the parties. Art. 2136. The debtor cannot reacquire the enjoyment of the immovable
without first having totally paid what he owes the creditor.
The bare testimony of one of the Heirs of Bangis, Rodolfo Bangis, that the But the latter, in order to exempt himself from the obligations
subject document was only handed to him by his father, Aniceto, with the imposed upon him by the preceding article, may always compel the debtor
information that the original thereof “could not be found” was insufficient to to enter again upon the enjoyment of the property, except when there is a
justify its admissibility. The identification made by Notary Public Atty. stipulation to the contrary.
Valentin Murillo that he notarized such document cannot be given credence
as his conclusion was not verified against his own notarial records. The first paragraph is very clear, the debtor cannot demand the return of the
possession of the immovable property until the debt is totally paid.
In sum, the Heirs of Bangis failed to establish the existence and due
execution of the subject deed on which their claim of ownership was So let’s have the case of Macapinlac.
founded.
MACAPINLAC VS. REPIDE
Q: So if there is no antichresis nor sale, what was the contract entered into GR 18574, September 20, 1922
by the parties?
A: At least it is a mortgage. Even if there is no written agreement there can Facts: On and prior to August 22, 1916, Jose Macapinlac was the owner of
still be a valid mortgage. the Hacienda Dolores, a property located in Pampanga. This property had
been registered and a Torrens certificate of title had been issued.
Q: Why was there an issue with regard to the nature of the contract i.e.
whether it was a sale, a mortgage, or an antichresis? Who was in On the date above stated, Macapinlac was indebted to Bachrach Motor
possession of the property? Company for the price of an automobile and its accessories, purchased upon
A: The heirs of Bangis were in possession. Bangis is the mortgagee. The credit; and as evidence of this indebtedness he executed 14 promissory
effect of the possession of the mortgagee even for a number of years such notes (PNs) payable to Bachrach amounting to the sum of P12,960.
will not transfer the possession of the property. Contemporaneously with the delivery of the PNs, Macapinlac executed what
purports to be a deed of sale, with privilege of repurchase, to be exercised
Relate these cases to the previous subjects that you have already taken. on or before October 2, 1917 (due date of the debt). This transfer covered
the Hacienda Dolores. In this conveyance E. M. Bachrach is named as
There is no antichresis here for failure to comply with the requirement under transferee.
Art. 2134. The principal or interest must be in writing otherwise the contract
of antichresis is void. There is also no proof that a contract of sale exists. The On November 8, 1917, Francisco Repide acquired, for the sum of P5,000, all
SC held that at the very least the contract that they had is that of mortgage. the rights of E. M. Bachrach in the property which had been conveyed to the
In a contract of mortgage, even if the mortgagee is in possession of the latter. Repide was well aware that the transfer of the property to Bachrach
property for a number of years, such possession is not in the concept of an had been made by the Macapinlac for the purpose of securing a debt owing
owner. Therefore, acquisitive prescription does not apply. The title remained to Bachrach Company, and he was also aware that part of the debt has been
with Adolfo and the upon his demise transferred to his heirs. Moreover, paid and there was only balance of less than one-half of the sum of P12,960.
even if the property has been in the possession of the heirs of Adolfo for 28
years, the long period of time should not be taken against the true owners of After Repide had acquired the interest in the hacienda in question, he
the mortgagors in this case. processed the certificate of title to be transferred to his own name.

The SC also pointed out that even if acquisitive possession is to be applied To accomplish this, it was necessary to make it appear that the contract of
considering that the heirs of Bangis were in bad faith, then you apply the 30 sale with pacto de retro noted in the original Torrens certificate was really
year adverse possession. In this case, only 28 years have passed. You can and truly what it appeared to be, that is, a contract of sale, not a mere
relate this to Land Titles as well as to the Laws on Prescription. mortgage, and that the ownership had consolidated in the purchaser by
reason of the failure of the seller to repurchase the property before the
Obligation of the creditor under Art. 2135: expiration of the time allowed for redemption. Inasmuch as it appeared that
the ownership had then consolidated in the purchaser, he directed the ROD
Art. 2135. The creditor, unless there is a stipulation to the contrary, is of Pampanga to register the property in the name of Francisco Gutierrez
obliged to pay the taxes and charges upon the estate. Repide and to issue to him a new certificate of transfer, which was
He is also bound to bear the expenses necessary for its accordingly done.
preservation and repair.
The sums spent for the purposes stated in this article shall be At the time of the filing of this complaint, Repide was in actual possession of
deducted from the fruits. the property in question, and that he had in effect been enjoying possession
since August 1917.
The obligation of the antichretic creditor: to pay the taxes and charges upon
the estate, unless there is a stipulation to the contrary. Issue: Is there an equitable mortgage? What contract governs between
Macapinlac and Repide (as successor in interest of Bachrach) if the original
If he does not pay taxes, he can be required to pay indemnity for damages. If contract was an equitable mortgage?
it is the debtor who paid the taxes, such amount shall be applied to the
payment of his debt. If such payment will result to the obligation being fully Ruling:
paid, the creditor will not have the obligation to return the possession to the THE ESTATE OF REPIDE OCCUPIES SUBSTANTIALLY THE POSITION OF A
owner. MORTGAGEE IN POSSESSION. The question then arises as to what are the

` Page 38 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

legal rights of the plaintiff as against the Repide estate.
 The solution of this tender? He said that he was willing to pay but without indicating how
much he was willing to pay. What was the ruling of the court?
problem is to be found in the application of the doctrine formulated in
A: There is still a need to account for the ample amount that Macapinlac has
Barretto vs. Barretto. In that case the heirs of a mortgagee of an estate were
to pay to Repide as the antichretic creditor.
found in possession of mortgaged property more than thirty years after the
mortgage had been executed; and it was shown that the mortgage had
Again, SC discussed an antichresis. However, take note that the term here
never been foreclosed. Upon this state of facts it was in effect held that the
which was used by the Court was mortgagee. But actually, it still refers to an
rights of the parties, heirs of the mortgagor and mortgagee, were essentially
antichretic creditor based on the intention of the parties.
the same as under the contract of antichresis.
Considering that there was an antichresis and not just an equitable mortgage,
By reference to the appropriate provisions of the Civil Code (arts. 1881-
the one in possession of the property or the creditor can continue to retain
1884), in the chapter dealing with antichresis, it will be at once seen that
the same until all the claims are satisfied. In the complaint, the plaintiff had
while non- payment of the debt does not vest the ownership of the property
made an offer – Macapinlac offered to pay Repide all debts and charges.
in the creditor, nevertheless the debtor cannot recover the enjoyment of the
However it was Repide who refused to accept. It was alleged that no valid
property without first paying in full what he owes to his creditor. At the
tender of payment was made that considering that there was no indication
same time, however, the creditor is under obligation to apply the fruits
of a specific sum. Notwithstanding, the SC noted that in this instance that
derived from the estate in satisfaction, first, of the interest on the debt, and
tender was not necessary because the amount cannot be known until an
secondly, to the payment of the principal. From this is necessarily deduced
accounting is had – And the accounting can be made on the part of the
the obligation of the creditor to account to the debtor for said fruits and the
creditor with regard to the fruits (i.e. how much were the fruits, how was it
corresponding right of the debtor to have the same applied in satisfaction of
applied, to what extent has it been applied to the obligation of the debtor.)
the mortgage debt.
Now, that’s a common issue regarding a contract of antichresis.
The respective rights and obligations of the parties to a contract of
antichresis may be taken to be established, namely:
In connection with the obligation of the creditor to apply the fruits to the
 that if the mortgagee acquires possession in 
 any lawful interest if owing, and thereafter to the principal, he has to liquidate or make
manner, he is entitled to retain such possession until the an accounting of how much is the value of the fruits and whether it was
indebtedness is satisfied and the property redeemed; applied to the interest and principal.
 that the non-payment of the debt within the term agreed does
not vest the ownership of the property in the creditor; 
 If creditor does not want to pay taxes and expenses
 that the general duty of the mortgagee in possession towards Under Art.2136, also take note of the 2nd paragraph. Remember under Art.
2135 that as a general rule, the creditor has the obligation to pay the taxes
the premises is that of the ordinary prudent owner; 

and expenses mentioned therein. If the creditor does not want to pay the
 that the mortgagee must account for the rents and profits of the taxes and incur expenses as mentioned in Art. 2135, he may compel the
land, or its value for purposes of use and occupation, any debtor to reacquire the enjoyment of the same, except when there is a
amount thus realized going towards the discharge of the contrary stipulation.
mortgage debt; 

 that if the mortgagee remains in possession after the mortgage Art. 2137. The creditor does not acquire the ownership of the real estate
debt has been satisfied, he becomes a trustee for the mortgagor for non-payment of the debt within the period agreed upon.
as to the excess of the rents and profits over such debt; and 
 Every stipulation to the contrary shall be void. But the creditor
may petition the court for the payment of the debt or the sale of the real
 that the mortgagor can only enforce his rights to the land by an
property. In this case, the Rules of Court on the foreclosure of mortgages
equitable action for an account and to redeem. 
 shall apply.

If the obligation is not paid, we are already clear that the debtor is not
Q: There is no antichresis in this case? entitled to the possession of the same.
A: There is an antichresis.
Let us also be clear that failure to pay on the part of the debtor does not
Q: Why is the agreement considered as an antichresis? mean that the creditor will now acquire ownership over the property. Again
A: The SC referred to the parties as mortgagee and mortgagor but it is really what the creditor only acquires in a contract of antichresis is the right to
an antichresis because their agreement involves the possession of the receive the fruits – There is no transfer of ownership.
property by the creditor until debtor pays all debts and charges and the
retention of the same until all valid claims against the estate are satisfied. What happened in the case of Ramirez?

Ma’am: There was an intention to apply the fruits of the property to the RAMIREZ VS. CA
obligation. Again, make the distinction between the mortgage and GR L-38185, September 24, 1986
antichresis. Facts:
On September 15, 1959, petitioners-spouses Hilario Ramirez and Valentina
Q: In this instance, even if there was an antichresis, can Repide demand the Bonifacio filed an application for registration of a parcel of riceland in
return of the property? Pamplona, Las Pinas, Rizal. After notice and publication, nobody appeared to
A: There can only be a return of the property if there has been a full oppose the application. An order of general default was issued and the court
payment of the debt. Only then can the debtor ask for the return of the allowed the petitioners to present evidence in support of their claim.
possession of the property. Thereafter, the petitioners presented parole evidence that they acquired the
land in question by purchase from Gregoria Pascual during the early part of
Q: Can Repide demand the return of the property? It was alleged that he the American regime but the corresponding contract of sale was lost and no
tendered the payment although with no amount. What is the effect of such copy or record of the same was available. On January 30, 1960, the court
ordered the issuance of the decree of registration and consequently, Original

` Page 39 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Certificate of Title No. 2273 of the Registry of Deeds of Rizal was issued in antichretic creditor to appropriate the property of an unpayment of the debt
the petitioners’ names. On March 30, 1960, private respondents filed a within the period agreed upon shall be void.
petition to review the decree of registration on the ground of fraud. The
respondents alleged among others that they obtained a loan of P400.00 Remedies available to an antichretic creditor in case the debtor fails to pay
from the petitioners in which they secured with a mortgage on the land in his obligation:
question by way of antichresis and that there were several attempts to 1. The creditor can file an action for specific performance or
redeem the land but were refused by the petitioners. collection for sum of money. He has to make sure that there will
still be a balance after the application of the fruits to the payment
The trial court ordered the cancellation of the original certificate of title. The 2. Art. 2137, 2nd paragraph – foreclose the mortgages as provided in
Court of Appeals affirmed the decision. the Rules of Court
3. Extajudicial foreclosure as allowed in contracts of mortgage and
Issue: Can an antichretic creditor acquire land of debtor by prescription? pledge

Ruling: NO. Art. 2138. The contracting parties may stipulate that the interest upon the
AN ANTICHRETIC CREDITOR CANNOT ACQUIRE THE LAND OF A DEBTOR BY debt be compensated with the fruits of the property which is the object of
PRESCRIPTION. AN ANTICHRETIC CREDITOR IS NOT A POSSESSOR IN THE the antichresis, provided that if the value of the fruits should exceed the
CONCEPT OF OWNER BUT A MERE HOLDER PLACED IN POSSESSION OF THE amount of interest allowed by the laws against usury, the excess shall be
LAND BY ITS OWNERS. Thus, possession of an antichretic creditor cannot applied to the principal.
serve as a title for acquiring dominion. The court, from other cases like
Trillana v. Manansala, Valencia v. Acala and Barretto v. Barretto, held that
the antichretic creditor cannot ordinarily acquire by prescription the land The antichretic creditor again is under the obligation to apply the fruits of
surrendered to him by the debtor. Holding: The decision appealed from is the property in satisfaction of the interest, if owing, and then to the principal.
affirmed with a modification that the respondents are ordered to pay the
petitioners the amount of P400.00 as principal for the contract of Art. 2139. The last paragraph of Article 2085, and Articles 2089 to 2091 are
antichresis, the fruits obtained from the possession of the land having been applicable to this contract.
applied to the interests on the loan.
We already know that the last paragraph of Art. 2085 allows third persons
Q: So first, it is established that you have here a contract of antichresis. who are not parties to the contract to secure the principal obligation with
Who is in possession of the property? the pledgee or mortgagee with their own property. In this case, subject their
A: The antichretic creditor. property to a contract of antichresis.

Q: For how long? What is the effect of the possession of the creditor? Under Articles 2089 to 2091, we have emphasized that contracts of pledge
A: The prescriptive period will not run. Acquisitive prescription will only run and mortgage are indivisible – so the same with antichresis. A contract of
when such possession is in the concept of an owner. antichresis is also indivisible.

Q: Is there a repudiation of the petitioner’s of their right as creditors? Under Art. 2091, it can also secure all kinds of obligation. Again, similar to a
A: No. pledge or mortgage: such obligation can be a pure obligation or subject to a
condition.
If there is a contract of antichresis the mortgagee creditors are only in
possession as creditors. They are not in possession thereof as owner – This It is not that common at present that the parties enter into a contract of
would be relevant to acquisitive prescription. Whether it is 10 years in good antichresis. Rarely do you see or do you encounter a parties who would want
faith or 30 years in bad faith, possession must be in the concept of an owner. to enter such contract.
In relation to Land Titles, such possession in concept of an owner must be
open, continuous, exclusive, notorious, and adverse. Such must be present Aside from a mortgage, what is the other agreement that may be entered
so the acquisitive prescription shall run. into by the parties?
They will enter into a contract of mortgage, na para din siyang antichresis.
In this case, Petitioners are only antichretic creditors and it was admitted Mortgage siya because it is a real estate mortgage provided that they all
that there was no repudiation for acquisitive prescription to run. The have requisites present. But there is a stipulation between the parties that
antichretic creditor cannot ordinarily acquire by prescription the lands the mortgagee will be given the possession of the property, to which he will
surrendered to him by the debtor. Here, the Petitioners are not possessors in be given the right to apply the fruits of the property to the obligation (i.e.
the concept of an owner but mere holders placed in possession of the land harvest.) So para din siyang antichresis – not strictly an antichresis, not
by its owners. Their possession cannot serve as a title for acquiring strictly a mortgage but nevertheless valid between the parties.
possession.
Another instance will be: a real estate mortgage where there is no transfer
Even if there is a stipulation that there is an acknowledgement that the of possession but there is an agreement that the harvest wil be applied to
creditor is in possession by virtue of an antichresis and that if the creditor the obligation. Minsan ang harvest pwede nilang paghatian (i.e. ½, 2/3.) The
continues to be in possession of the same for 30 years, he will become the harvest that will go to the creditor will be applied to the obligation and the
owner thereof, the such will be considered as void. same will continue until the obligation is fulfilled.

Again, possession must be in the concept of an owner which is different from Again, as long as all the valid requirements are present, an agreement is
that of an antichretic creditor, unless he repudiates his status. valid between the parties. So though it may not be strictly an antichresis it
will still be considered a valid contract.
Pactum Commissorium is not applicable to pledge and antichresis
A pactum commissorium is not applicable to pledge and antichresis because
there is no automatic appropriation to the creditor or antichretic creditor in
case the debtor fails to pay his obligation. A stipulation authorizing the

` Page 40 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

c. Revised Penal Code – on criminal liablity: Art. 319 on


Chapter 5 Estafa, (1) for knowingly removing any personal
CHATTEL MORTGAGE property mortgaged under the Chattel Mortgage Law
to any province or city other than the one where it
This is another kind of security. The only difference herein is that the chattel was located and at the time of the execution of the
mortgage involves personal property. mortgage, without the written consent of the
mortgagee; (2) for selling or pledging personal
Art. 2140. By a chattel mortgage, personal property is recorded in the property already mortgage or any part thereof under
Chattel Mortgage Register as a security for the performance of an the terms of the Chattel Mortgage Law without the
obligation. If the movable, instead of being recorded, is delivered to the consent of the mortgagee written on the back of the
creditor or a third person, the contract is a pledge and not a chattel mortgage duly recorded in the Chattel Mortgage
mortgage. Register.

We have a personal property as a security of a principal obligation to which Criminal liability must be distinguished from civil liability. This means that the
such mortgage contract is recorded in a Chattel Mortgage Registry. mortgagor shall not necessarily be relieved of his criminal liability even if the
subsequently pays the mortgagee. He can still be liable under the provisions
It is an accessory contract. We can also say that it is formal because of Art. of Article 319 of the RPC. Moreover, if the mortgaged property is sold, the
2140 – for validity, registration is indispensable. Under Art. 2140, it is also same is valid provided all the requisites for a valid sale are present even if
clear that a chattel mortgage is a nominate contract. no written consent was obtained from the mortgagee. But the mortgagor or
the one who sold the property can be criminally liable under Art. 319 of the
Distinguish Chattel Mortgage from a Pledge RPC.
Similarities:
1. Both are accessory contracts entered into to secure the THE CHATTEL MORTGAGE LAW
performance of a principal obligation. Act No. 1508, as amended
2. Both contracts involve personal properties.
3. Both contracts are indivisible. Section 1. The short title of this act shall be “The Chattel Mortgage Law.”
4. Both contracts constitute a lien on the property.
5. In both contracts, the creditor cannot appropriate the property to Sec. 2. All personal property shall be subject to mortgage, agreeably to the
himself in case the debtor defaults in the payment. provisions of this Act, and a mortgage executed in pursuance thereof shall be
6. Both will be extinguished upon the fulfillment of the principal termed a chattel mortgage.
obligation or by the destruction of the property pledged or
mortgaged. Sec. 3. Chattel mortgage defined.- A chattel mortgage is a conditional sale of
personal property as security for the payment of a debt, or the performance
Differences: of some other obligation specified therein, the condition being that the sale
CHATTEL MORTGAGE PLEDGE shall be void upon the seller paying to the purchaser a sum of money or
Under Art. 2140, the Registration is not doing some other act named. If the condition is performed according to its
As to registration is required for required for validity. terms the mortgage and sale immediately becomes void, and the mortgagee
registration validity. is thereby divested of his title.

No delivery is required. If It is a real contract Sec. 4. Validity.- A chattel mortgage shall not be valid against any person
As to delivery there is delivery, it will be wherein there must be except the mortgagor, his executors or administrators, unless the possession
considered as a pledge. delivery. of the property is delivered to and retained by the mortgagee or unless the
Sale of the Act No. 1508 or the Chattel Art. 2112 of the CC mortgage is recorded in the office of the Register of Deeds of the province in
property in case Mortgage Law applies. applies. which the mortgagor resides at the time of making the same, or if, he resides
of default within the Philippines, in the province in which the property is situated:
The creditor can still sue for The creditor cannot sue Provided, however, That if the property is situated in a different province in
the deficiency except if for the balance. While which the mortgagor resides, the mortgage shall be recorded in the office of
what is involved is a sale of the debtor on the other the Register of Deeds of both the province in which the mortgagor resides
personal property or on hand, does not also get and that in which the property is situated, and for the purposes of this Act,
installment. In other words, the excess unless there is the City of Manila shall be deemed to be a province.
Art. 1484 of the Recto Law a stipulation to the
is applicable. The debtor is contrary Sec. 5. Form. - A chattel mortgage shall be deemed to be sufficient when
entitled to the excess. made substantially in accordance with the following form, and shall be
signed by the person or persons executing the same, in the presence of two
witnesses, who shall sign the mortgage as witnesses to the execution
Art. 2141. The provisions of this Code on pledge, insofar as they are not in
thereof, and each mortgagor and mortgagee, or in the absence of the
conflict with the Chattel Mortgage Law, shall be applicable to chattel
mortgagee, his agent or attorney, shall make and subscribe an affidavit in
mortgages.
substance as hereinafter set forth, which affidavit, signed by the parties to
the mortgage as above-stated, and the certificate of the oath signed by the
What laws apply to Chattel Mortgage?
authority administering the same, shall be appended to such mortgage and
1. Act No. 1508 or the Chattel Mortgage Law – principally
recorded therewith.
2. Provisions of Pledge under the CC – suppletorily
3. There are other laws that can be applied depending on the
FORM OF CHATTEL MORTGAGE AND AFFIDAVIT.
subject matter:
“This mortgage made this ____ day of ______19____ by _______________,
a. Vessels: Ship Mortgage Decree
a resident of the municipality of ______________, Province of
b. Revised Administrative Code
____________, Philippine Islands mortgagor, to ____________, a resident of

` Page 41 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

the municipality of ___________, Province of ______________, Philippine If growing crops be mortgaged the mortgage may contain an agreement
Islands, mortgagee, witnesseth: stipulating that the mortgagor binds himself properly to tend, care for and
protect the crop while growing, and faithfully and without delay to harvest
“That the said mortgagor hereby conveys and mortgages to the said the same, and that in default of the performance of such duties the
mortgagee all of the following- described personal property situated in the mortgage may enter upon the premises, take all the necessary measures for
municipality of ______________, Province of ____________ and now in the the protection of said crop, and retain possession thereof and sell the same,
possession of said mortgagor, to wit: and from the proceeds of such sale pay all expenses incurred in caring for,
(Here insert specific description of the property mortgaged.) harvesting, and selling the crop and the amount of the indebtedness or
obligation secured by the mortgage, and the surplus thereof, if any shall be
“This mortgage is given as security for the payment to the said ______, paid to the mortgagor or those entitled to the same.
mortgagee, of promissory notes for the sum of ____________ pesos, with
(or without, as the case may be) interest thereon at the rate of ___________ A chattel mortgage shall be deemed to cover only the property described
per centum per annum, according to the terms of __________, certain therein and not like or substituted property thereafter acquired by the
promissory notes, dated _________, and in the words and figures following mortgagor and placed in the same depository as the property originally
(here insert copy of the note or notes secured). mortgaged, anything in the mortgage to the contrary notwithstanding.

“(If the mortgage is given for the performance of some other obligation aside Sec. 8. Failure of mortgagee to discharge the mortgage. — If the mortgagee,
from the payment of promissory notes, describe correctly but concisely the assign, administrator, executor, or either of them, after performance of the
obligation to be performed.) condition before or after the breach thereof, or after tender of the
performance of the condition, at or after the time fixed for the performance,
“The conditions of this obligation are such that if the mortgagor, his heirs, does not within ten days after being requested thereto by any person
executors, or administrators shall well and truly perform the full obligation entitled to redeem, discharge the mortgage in the manner provided by law,
(or obligations) above stated according to the terms thereof, then this the person entitled to redeem may recover of the person whose duty it is to
obligation shall be null and void. discharge the same twenty pesos for his neglect and all damages occasioned
thereby in an action in any court having jurisdiction of the subject-matter
“Executed at the municipality of _________, in the thereof.
Province of ________, this _____ day of 19_____
____________________ (Signature of mortgagor.) Sec. 9-12. (inclusive) 3

“In the presence of Sec. 13. When the condition of a chattel mortgage is broken, a mortgagor or
person holding a subsequent mortgage, or a subsequent attaching creditor
“_________________ “_________________ may redeem the same by paying or delivering to the mortgagee the amount
(Two witnesses sign here.) due on such mortgage and the reasonable costs and expenses incurred by
such breach of condition before the sale thereof. An attaching creditor who
FORM OF OATH. so redeems shall be subrogated to the rights of the mortgagee and entitled
“We severally swear that the foregoing mortgage is made for the purpose of to foreclose the mortgage in the same manner that the mortgagee could
securing the obligation specified in the conditions thereof, and for no other foreclose it by the terms of this Act.
purpose, and that the same is a just and valid obligation, and one not
entered into for the purpose of fraud.” Sec. 14. Sale of property at public auction; Officer's return; Fees;
Disposition of proceeds. — The mortgagee, his executor, administrator, or
FORM OF CERTIFICATE OF OATH. assign, may, after thirty days from the time of condition broken, cause the
“At ___________, in the Province of _________, personally appeared mortgaged property, or any part thereof, to be sold at public auction by a
____________, the parties who signed the foregoing affidavit and made oath public officer at a public place in the municipality where the mortgagor
to the truth thereof before me. resides, or where the property is situated, provided at least ten days' notice
“_____________________________” of the time, place, and purpose of such sale has been posted at two or more
(Notary public, justice of the peace, 1 or other officer, as the case may be.) public places in such municipality, and the mortgagee, his executor,
administrator, or assign, shall notify the mortgagor or person holding under
Sec. 6. Corporations.- When a corporation is a party to such mortgage the him and the persons holding subsequent mortgages of the time and place of
affidavit required may be made and subscribed by a director, trustee, sale, either by notice in writing directed to him or left at his abode, if within
cashier, treasurer, or manager thereof, or by a person authorized on the part the municipality, or sent by mail if he does not reside in such municipality, at
of such corporation to make or to receive such mortgage. When a least ten days previous to the sale.
partnership is a party to the mortgage the affidavit may be made and
subscribed by one member thereof. The officer making the sale shall, within thirty days thereafter, make in
writing a return of his doings and file the same in the office of the register of
Sec. 7. Descriptions of property.- The description of the mortgaged property deeds where the mortgage is recorded, and the register of deeds shall
shall be such as to enable the parties to the mortgage, or any other person, record the same. The fees of the officer for selling the property shall be the
after reasonable inquiry and investigation, to identify the same. same as in the case of sale on execution as provided in Act Numbered One
hundred and ninety, 4 and the amendments thereto, and the fees of the
If the property mortgaged be large cattle," as defined by section one of Act register of deeds for registering the officer's return shall be taxed as a part
Numbered Eleven and forty-seven, 2 and the amendments thereof, the of the costs of sale, which the officer shall pay to the register of deeds. The
description of said property in the mortgage shall contain the brands, class, return shall particularly describe the articles sold, and state the amount
sex, age, knots of radiated hair commonly known as remolinos, or cowlicks, received for each article, and shall operate as a discharge of the lien thereon
and other marks of ownership as described and set forth in the certificate of created by the mortgage. The proceeds of such sale shall be applied to the
ownership of said animal or animals, together with the number and place of payment, first, of the costs and expenses of keeping and sale, and then to
issue of such certificates of ownership. the payment of the demand or obligation secured by such mortgage, and the
residue shall be paid to persons holding subsequent mortgages in their

` Page 42 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

order, and the balance, after paying the mortgages, shall be paid to the Issue: Which should prevail, a prior mortgage executed over a motor
mortgagor or person holding under him on demand. vehicle, registered under the Chattel Mortgage Law only or a subsequent
registration of the vehicle in the MVO accompanied by actual possession?
If the sale includes any "large cattle," a certificate of transfer as required by
section sixteen of Act Numbered Eleven hundred and forty-seven 5 shall be Ruling:
issued by the treasurer of the municipality where the sale was held to the BORLOUGH’S RIGHT SHOULD BE UPHELD. The failure of the respondent
purchaser thereof. motgagee to report the mortgage executed in its favor had the effect of
making said mortgage ineffective against Borlough.
Sec. 15. 6, 6a
The recording provisions of the Revised Motor Vehicles law are merely
Sec. 16. This Act shall take effect on August first, nineteen hundred and six. complementary to those of the Chattel Mortgage Law. A mortgage to affect
3rd persons should be registered in the Chattel Mortgage Registry and
Enacted, July 2, 1906. Motor Vehiles Office as required in Section 5(e) of the Revised Motor
Vehicles Law
chattel mortgage = RoD
registration of vehicle = LTO
Valid subject matter of a Chattel Mortgage:
General Rule: Personal or movable properties. Q: What were registered? What contracts are involved here?
A: As to Aguinaldo, it was a chattel mortgage. As to Borlough, it was a
There may be variations allowed here: contract of sale.
1. You have shares of stock which is merely an evidence of an
intangible right – the latter being a personal property. The Q: You said both were registered, where were they registered?
requirement under the law is the registration of the Chattel A: As for Aguinaldo, it was registered with the RoD of Manila. As to Borlough,
Mortgage in both provinces of the owner of the shares of it was registered with the Motor Vehicles Office.
stock and the corporation which issued the shares.
2. Interest may also be subject of a chattel mortgage. Again Q: Who has a better right over the vehicle?
even if it is only an intangible property because just the A: Borlough. The SC emphasized that there are 2 laws involved: (1) Chattel
same, it is considered as a personal property. Mortgage Law and the (2) Revised Motor Vehicles Law. Aguinaldo was
3. Machineries treated by the parties as personal properties. banking on the Chattel Mortgage Law for his registration while Borlough was
You might have already discussed under Property the Davao banking on the Motor Vehicles Law. SC upheld the rights of Borlough
Sungmin (?) case wherein between the parties even if the because of the Revised Motor Vehicles Law. The purpose of the law is to
machinery is heavy, bolted or cemented, the parties will control the registration and operation of motor vehicles. The same also
treat it as a personal property, subject the same to a chattel added a requirement that there must still be a registration in accordance
mortgage, applying the principle of estoppel. with the Motor Vehicles Law in order for the registration to be effective to
4. Vessels. The Ship Mortgage Decree requires registration in third persons. In this case, Aguinaldo was not able to comply with such
the Philippine Coast Guard to be effective against third requirement because he only registered the car before the RoD. As a result,
persons his registration was not effective against third persons.
5. Motor vehicles. The mortgage must also be registered with
the LTO. Q: Can we not say that the registration with the Chattel Mortgage Register
6. Public Utility Vehicle. It must be registered with the LTFRB of Deeds shall also bind the Borlough considering that the purpose of such
for the purpose of binding third persons. is to bind 3rd persons through constructive notice?
A: No. Because the Revised Motor Vehicles Law is a new law compared to
What happened in the case of Borlough vs. Fortune? the Chattel Mortgage Law and it provides an additional requirement to
BORLOUGH VS. FORTUNE register the mortgage before the Motor Vehicles Office.
GR L-9451, March 29, 1957
Ma’am: Registration with the Motor Vehicles Office now the Land
Facts: United Car Exchange sold to Fortune Enterprises a chevrolet sedan Transportation Office is really just an additional requirement to bind 3rd
who sold it to Aguinaldo. The latter made a promissory note for P2400 persons.
payable in 20 installments with 12% per annum. He also executed a deed of
chattel mortgage over the car and registered the same in the RoD in Manila. Again we have a prior mortgage registered under the Chattel Mortgage Law
but was not registered in the Motor Vehicles Office. Its subsequent
When Aguinaldo defaulted payment, he sold the same to Borlough for P4000 registration by virtue of a sale with the Motor Vehicles Office accompanied
who registered the car with the Motor Vehicles Office. by actual possession.

Fortune brought an action against Aguinaldo to recover the balance of the The SC held that the RML is a special legislation to amend and compile the
purchase price. Borlough filed a 3rd party Complaint claiming the vehicle. laws relative to motor vehicles while the Chattel Mortgage Law is a general
vehicle was seized by the sheriff and sold it at public auction law covering mortgages of all kinds of personal property. The Chattel
Mortgage was not repealed by the Revised Motor Vehicles Law. It does not
CFI: in favor of Borlough; ordered Fortune to pay Borlough P4000 state that the registration is to be dispensed with. What we have under the
IAC: ordered Fajardo to pay P4000 plus atty’s fees Revised Motor Vehicles Law is an additional requirement.
• plaintiff to pay to Borlough any amount received by it
in excess of its credits and judicial expenses The recording provisions of the Revised Motor Vehicles Law are merely
• mortgage was superior being prior in point of time, to complementary to those of the Chattel Mortgage Law. To affect third
whatever rights may have been acquired by Borlough persons, the mortgage of any motor vehicle should not only be registered in
bu reason of his possession and by registration of his the Chattel Mortgage Registry, but the should also be recorded in the Motor
title Vehicles Office as required by section 5 (e) of the Revised Motor Vehicles

` Page 43 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Law. The failure of the mortgage to report the mortgage in his favor has the
effect of making said mortgage ineffective against a purchaser in good faith This is also an application of the principle of estoppel. The parties
(Borlough) who registers his purchase in the Motor Vehicles Office. Failure to themselves designated, deemed the property a personal property although
comply with this statute, the transferee’s title is rendered invalid as against it is a real property. They cannot later on impugn the validity of the contract
its subsequent purchaser who is enabled by such failure of compliance to as void as it did not comply with the requirements of the law to constitute a
retain the indicia of ownership, such as a subsequent purchaser in good faith. chattel mortgage. The parties cannot say that the contract is void because it
does not comply with the provisions of the law but instead they will be
There was no evidence that Borlough here was a purchaser in good faith. estopped from questioning the same. But as to third parties, it will
There was no evidence that he had prior notice of the mortgage executed in necessarily bind them when the mortgaged property is real instead of
favor of Fortune. So between the two, Borlough has a better right as against personal. The chattel mortgage will no doubt be held effective against 3rd
Fortune Enterprises. persons.

Other valid subject matter of chattel mortgage: But in the case of Standard Oil this was not ruled upon by the Courts because
7. House of fixed materials. A house which is intended to be the issue therein was the duty of the RoD to have the mortgage registered.
demolished. This is has been upheld by the SC as a valid subject This shouldn’t stop you from memorizing Art. 415 of the CC.
matter of chattel mortgage.
8. House built on a rented land. As mentioned earlier, if you have incorporeal properties it can be considered
as a valid subject matter in a contract of chattel mortgage. As I mentioned
STANDARD OIL VS. JARAMILLO earlier, shares of stock as an evidence of incorporeal right, registration is
GR 20329, March 16, 1923 required both in the principal place of business of the corporation and where
the stockholder resides.
Facts: Dela Rosa was the lessee of a land an owner of the building built
thereon. Subsequently he executed a chattel mortgage conveying to Now what about a subject matter described and identified in a chattel
Standard Oil both his leasehold interest in the land and the building which mortgage – what’s the rule there? What happened in the case of Saldaña?
was built over the leased land. In the document, it appeared that the clauses
were intended to be a mortgage. This document was acknowledged, Reasonable Description Rule:
delivered and presented to RoD Jaramillo for the purpose of registering this
document. RoD Jaramillo refused to register because the interest did not SALDAÑA VS. PHILIPPINE GUARANTY
appear to be a personal property within the meaning of the Chattel GR L-13194, January 29, 1960
Mortgage Law.
Facts: Josefina in order to secure a loan executed a chattel mortgage
Issue: Whether the RoD may refuse to register of the mortgage. covering properties described as follows:
A building of strong materials, used for restaurant business, located in
Ruling: front of the San Juan de Dios Hospital at Dewey Boulevard, Pasay City,
THE ROD MAY NOT REFUSE THE REGISTRATION OF THE MORTGAGE. It is and the following personal properties therein contained:
the ministerial duty for the RoD to register the mortgage. No provision of law
can be cited which confers upon him any judicial or quasi-judicial powers to 1 Radio, Zenith, cabinet type.
determine the nature of any document of which registration is sought as a 1 Cooler.
chattel mortgage. 1 Electric range, stateside, 4 burners.
1 Frigidaire, 8 cubic feet.
THE REGISTRATION IS A CONSTRUCTIVE NOTICE OF AN EXISTENCE OF A 1 G.E. Deepfreezer.
CONTRACT AND THE LEGAL EFFECTS OF THE CONTRACT MUST BE 8 Tables, stateside.
DISCOVERED IN THE INSTRUMENT ITSELF. SUCH REGISTRATION ADDS 32 Chromium chairs, stateside.
NOTHING TO THE INSTRUMENT. 1 Sala set upholstered, 6 pieces.
1 Bedroom set, 6 pieces.
Q: What is the effect of registering a chattel mortgage which actually
involves a real property? And all other furniture's, fixtures or equipment found in the said
A: Here, the SC held that the parties to the contract may treat as personal premises.
property that which by its nature would be a real property.
Subsequent to the execution of the mortgage, a writ of execution was duly
Q: Will the chattel mortgage be invalid? issued as a result of a civil case instituted by Hospital de San Juan de Dios
A: It will not invalidate the chattel mortgage only between the parties. against Josefina Eleazar; whereupon the following properties of Josefina
Because we apply the principle of estoppel. Eleazar were levied upon:
8 Tables with 4 (upholstered) chairs each.
Regardless of the nature of the property subject of a chattel mortgage, even 1 Table with 4 (wooden) chairs.
if it indicates as a subject matter a real property, the RoD has no right to 1 Table (large) with 5 chairs. 1 Radio-phono (Zenith, 8 tubes).
refuse the registration of the same on the ground that he finds that the 2 Showcases (big, with mirrors).
properties actually are real properties as his duties with respect to such 1 Rattan sala set with 4 chairs, 1 table and 3 sidetables .
instruments are ministerial only. 1 Wooden drawer.
1 Tocador (brown with mirror).
As between the parties, if a real property – as you have discussed in 1 Aparador .
Property, Article 415 wherein those considered as real properties are 2 Beds (single type).
enumerated, if the same are made subject matter in a chattel mortgage, it 1 Freezer (deep freeze).
will not necessarily invalidate the chattel mortgage as between the parties. 1 Gas range (magic chef, with 4 burners).
As long as it is deemed to be the agreement between the parties, and no 3rd 1 Freezer (G.E.).
parties are prejudiced, the mortgage will actually be upheld.

` Page 44 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

On January 31, 1957, the plaintiff-appellant Saldana filed a third-party claim the restaurant of the mortgagor, which articles can be definitely pointed out
asserting that the above-described properties levied are subject to his or ascertained after a simple inquiry about the premises.
chattel mortgage of May 8, 1953. In virtue thereof, the sheriff released only
some of the property originally included in the levy of January 28, 1957, to Again, under Section 7, like or subsituated properties made reference to
wit: 1 radio, 8 tables, 32 chromium chairs, 1 G.E. Freezer. those thereafter acquired by the mortgagor and placed in the same
depository as a property originally mortgaged.
Appellant claims that the phrase “ and all other furnitures, fixtures and
equipment found in the said premises," validly and sufficiently covered So take note of this rule with regard to the description of the personal
within its terms the personal properties disposed of in the auction sale. property mortgaged. Notice the difference when compared to a real estate
mortgage contract. Since in the latter, a mistake or typo in the number of the
ISSUE: Whether or not the properties levied are covered by the mortgage. title will invalidate the subsequent foreclosure proceeding. It must be really
YES. specific. But here, there is leeway as long as it can be reasonably determined.

HELD: Section 7 of Act No. 1508, commonly and better Affidavit of Good Faith
known as the Chattel Mortgage Law, does not demand a minute and specific With regard to a chattel mortgage, there is a requirement for the execution
description of every chattel of an affidavit of good faith. This is an oath in a contract of a chattel
mortgaged in the deal of mortgage but only requires that the description of mortgage wherein the parties (mortgagor and mortgagee) severely swear
the properties be such "as to enable the parties in the mortgage, or any that the mortgage is made for the purpose of securing the obligations
other person, after reasonable inquiry and investigation to identify the specified in the conditions thereof and for no other purposes and that the
same". same is a just and valid obligation and not entered into for the purpose of
fraud.
Gauged by this standard, general description have been
held by this Court. The description in the mortgage must point out its subject You have the case of Lilius vs. Manila Railroad.
matter so that such person may identify the chattels observed, but it is not
essential that the description be so specific that the property may be LILIUS VS. MANILA RAILROAD
identified by it alone, if such description or means of identification which, if GR 42551, September 4, 1935
pursued will disclose the property conveyed.
Facts: In G.R. No. L-39587, Aleko E. Lilius, and his wife Sonja Maria Lilius, and
The specifications in the chattel mortgage contract in the Brita Marianne Lilius, met an accident, wherein their Studebaker car, collided
instant case, we believe, in substantial compliance with the "reasonable with locomotive No. 713, Manila Railroad’s train. They were awarded by the
description rule" fixed by the Chattel Mortgage Act. We may notice in the SC damages including interests and costs.
agreement, moreover, that the phrase in question is found after an
enumeration of other specific articles. It can thus be reasonably inferred In G.R. No. 42551, Laura Shuman, the Manila Wine Merchants, Ltd., the Bank
therefrom that the "furnitures, fixture and equipment" referred to are of the Philippine Islands and the Manila Motor Co., Inc. (creditors of the
properties of like nature, similarly situated or similarly used in the restaurant spouses Lilius) have appealed from the order of the CFI of Manila fixing the
of the mortgagor located in front of the San Juan de Dios Hospital at Dewey degree of preference of the claimants distributing the proceeds of the
Boulevard, Pasay City, which articles can be definitely pointed out or judgement of the this court in the case of Lilius vs. Manila Railroad.
ascertain by simple inquiry at or about the premises. A contrary view would
unduly impose a more rigid condition than what the law prescribes, which is Manila Motor claims that the lower court erred in not holding their claims,
that the description be only such as to enable identification after a evidenced by public document and final judgement, as preferred over all
reasonable inquiry and investigation. other claims against Aleko E. Lilius. The public document refers to a
mortgage appearing in the evidence as the basis of its judgement, without
Q: What is the issue here? What was included in the chattel mortgage mentioning the date of execution of the exhibit.
contracts? Did it include all the properties of the mortgagor? What is the
reasonable description rule? What does it require? Does the same specific Issue: Is there a valid chattel mortgage as alleged by Manila Motor?
description in a real estate mortgage contract? What phrase in the chattel
mortgage? Ruling: YES.
UNDER SECTION 5 OF ACT NO. 1507, AS AMENDED BY ACT NO. 2496, A
Section 7 does not demand a specific description of every chattel or personal CHATTEL DOES NOT HAVE TO BE ACKNOWLEDGED BEFORE A NOTARY
property mortgage. In the deal of mortgage only requires that description of PUBLIC. As against creditors and subsequent encumbrances, the law does
the property be such as to enable the parties in a mortgage or any other require an affidavit of good faith appended to the mortgage and recorded
person, after reasonable inquiry and investigation to identify the same. That with it. A chattel mortgage may, however, be valid as between the parties
is the reasonable description rule to which general description have been without such an affidavit of good faith. The rule is expressly stated that as
upheld by the Court. between the parties and as to third persons who have no rights against the
mortgagor, no affidavit of good faith is necessary. It will thus be seen that
So as against third persons, the description must point out a subject matter under the law, a valid mortgage may exist between the parties without its
so that such person may identify the chattels observed. But it is not essential being evidenced by a public document.
that the description be so specific that the property may be identified by him
alone in such description or by means of identification which if pursued will Q: Do you have a valid chattel mortgage here?
disclose the property conveyed. A: Yes. Because the Court said that the chattel does not need to be
acknowledged before a notary public. As against creditors and subsequent
The phrase “and all other furnitures, fixtures, and equipment found in the encumbrances, the law requires an affidavit of good faith.
said premises,” placed after the enumeration of other specific articles, which
makes it reasonably inferred that the furniture, picture and equipment Q: What is the effect if there is no affidavit of good faith?
referred to are properties of like nature similarly situated or similarly used in A: According to the Court, the mortgage is still valid despite the absence of
the affidavit of good faith.

` Page 45 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

property given as security and in the absence of any sign that might arouse
Q: Why do we still need an affidavit of good faith? suspicion, has no obligation to undertake further investigation. Hence, even
A: Without it, the mortgage wouldn’t be binding against third parties who if the mortgagor is not the rightful owner of or does not have a valid title to
were prejudiced or who have rights against the property. the mortgaged property, the mortgagee or transferee in good faith is
nonetheless entitled to protection.” Although this rule generally pertains to
The absence of an affidavit of good faith does not affect the validity of a real estate property, particularly registered land, it may also be applied by
mortgage. The parties will still be bound by the mortgage as well as third analogy to personal property, in this case specifically, since ship owners are,
persons who have no rights against the mortgagor or have no rights as likewise, required by law to register their vessels with the PCG.
against the property. But with regard to 3rd persons who will be prejudiced
by such mortgage or have rights against the mortgagor, an affidavit of good PETITIONER FAILED TO COMPLY WITH THE SPECIAL AFFIDAVIT OF GOOD
faith is necessary. A valid mortgage may still exist between the parties, in FAITH AS REQUIRED IN SEC. 4 OF PD 1521. The special affidavit of good
fact, even without it being evidenced by a public document. However, for it faith, is required only for the purpose of transforming an already valid
to be registered, the RoD will require that the same be notarized. mortgage into a “preferred mortgage.” Thus, the abovementioned affidavit
is not necessary for the validity of the chattel mortgage itself but only to give
How about the case of Cebu International? it a preferred status.

CEBU INTERNATIONAL FINANCE VS. CA As between two innocent persons, the mortgagee and the owner of the
GR 107554, February 13, 1997 mortgaged property, one of whom must suffer the consequence of a breach
of trust, the one who made it possible by his act of confidence must bear the
Facts: On 4 March 1987, Jacinto Dy executed a Special Power of Attorney in loss, it is Ang Tay and his principal Jacinto Dy who must, unfortunately, suffer
favor of private respondent Ang Tay, authorizing the latter to sell the cargo the consequences thereof. They are considered bound by the chattel
vessel Owned by Dy and christened LCT “Asiatic.” mortgage on the subject vessel.

On 28 April 1987, through a Deed of Absolute Sale, Ang Tay sold Q: Before it was registered, what did he do? What was the requirement
the subject vessel to private respondent Robert Ong (Ong) for P900,000.00. before it can be registered? What did he do to the copies of the deed of
Ong paid the purchase price by issuing three (3) checks in the following sale?
amounts: P150,000.000, P600,000.00 and P150,000.00. However, since the A: He had them notarized.
payment was not made in cash, it was specifically stipulated in the deed of
sale that the “LCT Asiatic shall not be registered or transferred to Robert Ong Ma’am: Yes because if it is not notarized, it will not be registered.
until complete payment.”
Q: Was there an affidavit of good faith here?
Thereafter, Ong obtained possession of the subject vessel so he A: None. But then the Court said that the affidavit of good faith is not
could begin deriving economic benefits therefrom. He, likewise, obtained necessary because it would just add value to the mortgage but it would still
copies of the unnotarized deed of sale allegedly to be shown to the banks to be valid between the parties. It’s effect aside from adding value, it turns…
enable him to acquire a loan to replenish his (Ong’s) capital. The
aforequoted condition, however, which was handwritten on the original You have a mortgagee in good faith. While it was true that there was yet no
deed of sale, does not appear on Ong’s copies. valid deed of sale, or duly executed sale in favor of Ong, it appears that he
was able to have the same notarized and registered it. Remember with
Contrary to the aforementioned agreements and without the regard to vessels that the Certificate of Ownership and Certificate of
knowledge of Ang Tay, Ong had his copies of the deed of sale (on which the Philippine Registry must be duly registered with the Philippine Coast Guard.
aforementioned prohibition does not appear) notarized on 18 May 1987. In this instance, you have a mortgagee who relied in good faith on the
Ong presented the notarized deed to the Philippine Coast Guard which Certificate of Title of the mortgagor to which the title was given as security –
subsequently issued him a Certificate of Ownership and a Certificate of which had no sign that might arouse suspicion. Therefore, Cebu International
Philippine Register over the subject vessel on 27 May 1987. Ong also had no obligation to undertake further investigation, applying mortgagee in
succeeded in having the name of the vessel changed to LCT “Orient Hope.” good faith. Even if the mortgagor is not the rightful owner does not have the
valid title to the mortgaged property, the mortgagee or transferee is
On 29 October 1987, Ong acquired a loan from petitioner in the nonetheless entitled to protection.
amount of P496,008.00 to be paid in instalments as evidenced by a
promissory note of even date. Eventually, he defaulted in his payments. The mortgagee in good faith that we have discussed in real estate mortgage
was applied in this instance by analogy to personal properties since the
Issue: Is there a valid chattel mortgage? vessel was duly registered in the Philippine Coast Guard.

Ruling: Notice that there was no affidavit of good faith here but the SC still upheld
THE CHATTEL MORTGAGE CONTRACT BETWEEN CEBU INTERNATIONAL the mortgage in favor of Cebu International because the purpose of the
AND ONG IS VALID AND SUBSISTING. It cannot be disputed that it was Dy affidavit of good faith is not only to bind third persons (although it cannot be
who was the seller and Ong the buyer of the vessel. Petitioner is the applied to a mortgagee in good faith) but it can also, as an additional effect
creditor-mortgagee and not the owner-seller. The mortgage contract which thereof is that it may be considered as a preferred mortgage. So when you to
expresses the true nature of the transaction between petitioner and Ong: concurrence and preference of credits, when we say preferred mortgage and
that it is a simple loan with chattel mortgage. The amount that was loaned to it turns out that the debtor is insolvent and you have these vessels subject to
Ong does not represent the balance of any purchase price since the a mortgage, if there is an affidavit of good faith, the proceeds of the sale of
documents state that Ong is already the absolute owner of the subject that vessel will be applied first to the mortgagee. If the mortgage does not
vessel. have an affidavit of good faith, you will not have any preference over the
proceeds of the sale of the vessel. You will be joined with the other creditors
CEBU INTERNATIONAL IS A MORTAGEE IN GOOD FAITH WHOSE RIGHTS and any of the remaining proceeds of the sale of the vessel will be shared
MUST BE RESPECTED. The prevailing jurisprudence is that “a mortgagee has pro rata if hindi applicable yung hierarchy as to the preference of claims.
a right to rely in good faith on the certificate of title of the mortgagor to the

` Page 46 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

I think you have the sample form in Art. 1508 and both parties will execute indispensable, in order that a mortgage may be validly constituted that the
such affidavit. Its purpose is to secure the fulfillment of the obligation and document in which it appears be recorded in the Registry of Property. If the
not executed to defraud third persons. Its absence will only depreciate the instrument is not recorded, the mortgage is nevertheless binding between
mortgage, will not bind the mortgagees as against 3rd persons who will be the parties.
prejudiced thereby and it will not transform an already valid mortgage into a xxxxxxxxx
preferred mortgage. Such affidavit is not necessary for the validity of the The petitioner cannot invoke the above provision to nullify the chattel
mortgage. Again such absence of the affidavit will still leave the mortgage as mortgage it executed in favor of respondent DBP.
valid between the parties but not binding as against third persons who have
rights against the mortgagor the contract is not valid. The credits secured by Discussion on the case:
the mortgage will also not assume the position of a preferred credit in the Article 2125 is a provision under real estate mortgage, but in this case of
absence of such affidavit. Filipinas, it applied the same provision to a chattel mortgage, wherein it was
ruled that even if it was not recorded, it is nevertheless binding between the
Importance of an Affidavit of Good Faith parties.
Very important ang affidavit of good faith, because remember, in a chattel
mortgage, the property is not delivered to the mortgagee-creditor. It Filipinas cannot invoke the provision to nullify the chattel mortgage it
remains in possession of the debtor-mortgagor. Because once it is delivered executed in favor of DBP.
to the debtor-mortgagor, it is not considered as a mortgage anymore but a
pledge. What is the relevance there? For example, hahabulin yan kasi may Discussion on the provision/topic:
iba ka pang utang, tapos mamaya magexecute tayo ng mortgage para 2140 does not automatically or necessarily say that if it is not recorded, the
walang makukuha sayo. With the affidavit of good faith, this is also to mortgage is void. Although in the discussions, it is mentioned that for validity,
prevent fraud in the sense na magexecute tayo ng chattel mortgage para the registration is indispensable. If you try to reconcile that with Filipinas
hindi ma-sheriff or habulin. With the execution of the affidavit of good faith, case, applying 2125, SC emphasized that it is still valid despite the absence of
you attest that the obligation is true and it exists na may utang ka talaga. registration. There are no cases which repealed or superseded the ruling on
Because with an affidavit, you attest to the truthfulness that the there is a Filipinas which applied 2125 on a chattel mortgage.
valid obligation which exists and that the mortgage is not entered into to
defraud creditors. Previously, we discussed that we apply the ruling in the case of Saldana
wherein it was ruled that: unlike in REM, in Chattel Mortgage Law, it does
March 14 – Kuit not require a specific description. It only requires the description of the
mortgaged property sufficient to identify the same after a reasonable
Definition of Chattel Mortgage: investigation and inquiry.

Art. 2140. By a chattel mortgage, personal property is recorded in the Absence of affidavit of good faith: chattel mortgage is still valid. However,
Chattel Mortgage Register as a security for the performance of an absence thereof will vitiate mortgage only against third persons without
obligation. If the movable, instead of being recorded, is delivered to the notice, creditors, and subsequent encumbrancers. Moreover, its absence will
creditor or a third person, the contract is a pledge and not a chattel convert the chattel mortgage to a preferred credit.
mortgage.
A property subject of a chattel mortgage is not delivered to the creditor, Similar to continuing guaranty, with regard to mortgage, as long as a
otherwise, it may be considered as a pledge. mortgage has a valid blanket clause, it will also secure even future debts.

In relation to the requirement of recording, let’s look at the case of: But what about chattel mortgage?
FILIPINAS MABLE CORPORATION vs. THE HONORABLE INTERMEDIATE ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC vs. HON.
APPELLATE COURT COURT OF APPEALS, PRODUCERS BANK OF THE PHILIPPINES and REGIONAL
[G.R. No. L-68010 May 30, 1986] SHERIFF OF CALOOCAN CITY
[G.R. No. 103576. August 22, 1996]
Facts: DBP granted a 5M loan to Filipinas. To secure the said loan, it
executed a deed of mortgage (chattel) and deed of assignment in favor of Facts: ACME obtained a P3M loan (1978) secured by a chattel mortgage from
DBP. Filipinas seeks to annul the deed of assignment and deed of mortgage Producers Bank, which the latter granted. The said loan was fully paid.
because allegedly the loan was never delivered to them.
“In case the MORTGAGOR executes subsequent promissory note or notes
Filipinas’ contention: either as a renewal of the former note, as an extension thereof, or as a new
There was no valid loan contract for failure of consideration, the mortgage loan, or is given any other kind of accommodations such as overdrafts, letters
cannot exist or stand by itself being a mere accessory contract. Additionally, of credit, acceptances and bills of exchange, releases of import shipments on
the chattel mortgage has not been registered. Therefore, the same is null Trust Receipts, etc., this mortgage shall also stand as security for the
and void under Article 2125 of the New Civil Code payment of the said promissory note or notes and/or accommodations
without the necessity of executing a new contract and this mortgage shall
Issue: WON the failure to record the deed makes the latter null and void have the same force and effect as if the said promissory note or notes and/or
accommodations were existing on the date thereof. This mortgage shall also
Ruling: NO. stand as security for said obligations and any and all other obligations of the
As regards the second assignment of error, we agree with the petitioner that MORTGAGOR to the MORTGAGEE of whatever kind and nature, whether
a mortgage is a mere accessory contract and, thus, its validity would depend such obligations have been contracted before, during or after the
on the validity of the loan secured by it. We, however, reject the petitioner's constitution of this mortgage.”
argument that since the chattel mortgage involved was not registered, the
same is null and void. Article 2125 of the Civil Code clearly provides that the The bank again extended a P1M loan (1984) to ACME. However, the P1M
non-registration of the mortgage does not affect the immediate parties. It loan was not settled. Hence, Producers Bank applied for an extrajudicial
states: foreclosure of the chattel mortgage which secured the P3M loan.
Art. 2125. In addition to the requisites stated in article 2085, it is

` Page 47 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Issue: WON chattel mortgage may cover future debts What is the purpose of affidavit of good faith?
"x x x (the) mortgage is made for the purpose of securing the obligation
Ruling: NO. specified in the conditions thereof, and for no other purpose, and that the
While a pledge, real estate mortgage, or antichresis may exceptionally same is a just and valid obligation, and one not entered into for the purpose
secure after-incurred obligations so long as these future debts are accurately of fraud."
described, a chattel mortgage, however, can only cover obligations existing
at the time the mortgage is constituted. Although a promise expressed in a That the mortgage was executed to secure the fulfillment of an obligation,
chattel mortgage to include debts that are yet to be contracted can be a which is a true obligation, and it is not executed to defraud third persons.
binding commitment that can be compelled upon, the security itself,
however, does not come into existence or arise until after a chattel In other words, you really have to expressly and specifically provide that at
mortgage agreement covering the newly contracted debt is executed either the time the mortgage was executed, there exists a true obligation.
by concluding a fresh chattel mortgage or by amending the old contract Remember, that the property here is not delivered to the possession of the
conformably with the form prescribed by the Chattel Mortgage Law. Refusal mortgage. It remains in the possession of the debtor. The latter, in the event
on the part of the borrower to execute the agreement so as to cover the the other creditors foreclose the property, cannot say that he does not own
after-incurred obligation can constitute an act of default on the part of the the property or that it was mortgaged to avoid the foreclosure, there must
borrower of the financing agreement whereon the promise is written but, of be a chattel mortgage executed and there is an affidavit of good faith, so as
course, the remedy of foreclosure can only cover the debts extant at the not to defraud third persons.
time of constitution and during the life of the chattel mortgage sought to be
foreclosed. Discussion on the topic:

A chattel mortgage, as hereinbefore so intimated, must comply substantially In REM, does it cover the fruits of the mortgaged property? Yes, unless
with the form prescribed by the Chattel Mortgage Law itself. One of the there is an agreement to the contrary.
requisites, under Section 5 thereof, is an affidavit of good faith. While it is
not doubted that if such an affidavit is not appended to the agreement, the How about with regard to personal properties?
chattel mortgage would still be valid between the parties (not against third General Rule: It does not cover subsequently acquired personal properties.
persons acting in good faith]), the fact, however, that the statute has Exception: inventories are mortgage – e.g sari sari store, etc.
provided that the parties to the contract must execute an oath that -
If we’re talking of goods in the ordinary course of business, it can be
"x x x (the) mortgage is made for the purpose of securing the obligation replenished and to which it can be a valid subject in a contract of chattel
specified in the conditions thereof, and for no other purpose, and that the mortgage. The after-acquired properties, since it can be replenished, may be
same is a just and valid obligation, and one not entered into for the purpose used to fulfill an obligation, even if at the time the chattel mortgage was
of fraud." executed, the exact properties were not yet present.

makes it obvious that the debt referred to in the law is a current, not an Can a creditor of a chattel mortgage assign his rights to a third person? YES,
obligation that is yet merely contemplated. In the chattel mortgage here same rule with REM. The creditor can assign his credit to some other person
involved, the only obligation specified in the chattel mortgage contract was to which if the debtor fails to pay his obligation, the third person can hold
the P3,000,000.00 loan which petitioner corporation later fully paid. By the same as against the debtor. If debtor fails to pay, the assignee can
virtue of Section 3 of the Chattel Mortgage Law, the payment of the foreclose the property.
obligation automatically rendered the chattel mortgage void or terminated.
Is it required that the assignment be registered to bind debtor? NO because
Q: Do you have a provision in the mortgage which covers future debts? of 1240.
A: Yes (see italicized portion of the case).
Art. 1240. Payment shall be made to the person in whose favor the
Q: Is the provision valid? obligation has been constituted, or his successor in interest, or any person
A: Yes but they must execute a new chattel mortgage or amend the old one. authorized to receive it. (1162a)
Otherwise, it is without any effect.
Even if you merely registered the assignment credit and the same is without
Discussion on the case: the knowledge of the debtor, payment results to the extinguishment of the
Ma’am reads ruling (see 1st paragraph in the ruling). In this instance, 1978 obligation. Why? Because as to the debtor, the creditor is still the creditor at
chattel mortgage already ceased to exist with the full payment of the P3M the time of payment. So, what is required is personal knowledge. Mere
loan. Remember, when the principal obligation is extinguished, the accessory registration is not sufficient without the actual knowledge of the debtor.
obligation is also extinguished. Therefore, there were no more chattel The debtor cannot be prejudiced by the assignment. The remedy of the third
mortgage that could cover the loans concluded thereafter. Take note of this person is to go after the creditor. If the debtor has knowledge, even if not
distinction (compared to pledge, REM, and guaranties and securities), that a registered, he has to pay to the assignee to extinguish the obligation.
chattel mortgage may only cover obligations existing at the time the
mortgage is constituted. Even if there is a promise, as in the case of Acme, Who may redeem? Technically speaking, when we’re talking about a chattel
the security itself does not come into existence until they will execute a new mortgage, we’re not talking about the right of redemption. But, who may
chattel mortgage or amend the old one, specifically stating that in this pay the obligation to the creditor before it is sold?
personal property there is a new obligation and it acts as a security for this 1) Mortgagor;
specific new obligation. 2) a person holding a subsequent mortgage;
3) or a subsequent attaching creditor.
A deed of chattel mortgage shall be void if it provides that the security
stated is for the payment of any and all obligations contracted. Void in the In other words, if a second mortgagee is allowed in REM, the same is also
sense that it is without any effect until it will be amended or a new mortgage allowed in a chattel mortgage.
contract will be contracted.

` Page 48 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

However, in a chattel mortgage, the second mortgage cannot foreclose the judgment against Tunaya in a Civil Case. They caused the levy in execution on
property before the first mortgagee. What can he do? Pay debtor’s Tunaya’s personal properties, including the piano and the stove mortgaged
obligation to first mortgagee, but of course, the debtor’s obligation to the to Cabral spouses.
second mortgagee will increase (plus obligation to first mortgagee).
The said mortgage chattels, together with other personal properties of the
A second mortgagee is allowed, However, the latter cannot foreclose the judgment debtor, were sold at public auction to Evangelista spouses as the
mortgage. What he can do is to redeem the property from the first highest bidders. The judgment credit of Evangelista spouses, as creditors in
mortgagee, pay off the latter and in effect the second mortgagee will be the said Civil Case, was considered paid up and the Sheriff issued the
entitled to the mortgage. corresponding certificate of sale in their favor.

What about possession of the property? We mentioned in our REM Subsequently, 8 months after the maturity of Tunaya’s promissory note and
discussion that the property need not be delivered to the mortgagee, unless his having defaulted in the payment thereof, Cabral spouses filed their
agreed otherwise. complaint against Tunaya and the Evangelista spouses, alleging that the
Evangelista spouses had refused their demands to pay the amount due to
How about in chattel mortgage? Tunaya’s promissory note or to exercises their right of redemption.
1) Before default/foreclosure, the mortgagee is not entitled to the
possession of the property. Otherwise, it would be considered a Evangelista spouses now claim that their right over the mortgaged chattels
pledge. as purchasers at the public sale in execution of their judgment against their
2) After default, if the mortgagee desires to foreclose the property, debtor, Tunaya, should not be held subordinate to the mortgage lien of
the creditor can take possession of the property. However, it is Cabral spouses as mortgagees, by virtue of prescription and laches on the
not in the concept of an owner, but for purposes of selling the part of said mortgagees as well as of their having purchased the chattels at a
property. public sheriffs sale.

If the mortgagor, after default, refuses to deliver the property, the Issues:
mortgagee can file a judicial foreclosure for purposes of sale. (1) Has the right of Cabral Spouses to recover the properties prescribed?
NO.
We also apply the rule (pactum commissorium) that the mortgagor cannot (2) Did the Certificate of Sale give the Evangelista Spouses superior right
automatically appropriate the property to himself. against the Cabral Spouses? NO.

If there is another party who is in possession of the property, the mortgagee Ruling:
can implead those who are claiming possession or ownership of the same. So, (1) This 30-day period is the minimum period after violation of the
the creditor shall implead all persons claiming possession or ownership over mortgage condition for the mortgage creditor to cause the sale at
the property mortgaged. public auction of the mortgaged chattels, with at least ten days’ notice
to the mortgagor and posting of public notice of the time, place and
Now Act No. 1508 (page 48) provides for the proceeding of the foreclosure purpose of such sale, and is a period of grace for the mortgagor, who
of a chattel mortgage to which the mortgagee must discharge the mortgage has no right of redemption after the sale is held, to discharge the
in the manner provided in the said law. Otherwise, he can be held liable for mortgage obligation.
damages by any person entitled to redeem the property.
The prescription period for recovery of movables for foreclosure
It is the same with pledge and real estate mortgage. What takes place here is purposes such as in the present case is eight years as provided in
a public sale – a public auction. So again, the creditor has no right to Article 1140 of the Civil Code, and here plaintiffs had timely filed their
appropriate to himself the personal property. action within 8 months from the mortgage debtor's default.

If you take a look at Act No. 1508, more or less, the procedure prescribed By the same token , neither could laches properly be imputed against
therein is more or less the same with a foreclosure of a mortgage. But you plaintiffs, who filed their action promptly after they had been advised
will notice the difference in the number of days in absence of we call the by Tunaya of the public auction sale on June 24, 1960 of the chattels,
right redemption. at the instance of Evangelista as his judgment creditor.

Although, same with Art. 2135, the mere fact that the mortgagee was sole (2) Evangelista spouses’ purchase of the mortgaged chattels at the public
bidder for the mortgaged property in a public sale – so it must be really in a sheriff's sale and the delivery of the chattels to them with a certificate
public sale, does not warrant that the transaction was attended with fraud. It of sale did not give them a superior right to the chattels as against the
is not sufficient that one alleges fraud, it requires full and convincing Cabral spouses.
evidence.
It has long been settled by this Court that “The right of those who
Take a look at Section 14 of Act No. 1508: there is a 30 day period stated acquire said properties should not and cannot be superior to that of
therein. What is this 30 day period? We have the case of Cabral. the creditor who has in his favor an instrument of mortgage executed
with the formalities of the law, in good faith, and without the least
indication of fraud.
CABRAL VS. EVANGELISTA
G.R. L-26860, July 30, 1969 In another case case between two mortgagees, we held that "As
Facts: between the first and second mortgagees, therefore, the second
On 12 Dec 1959, George had executed in favor of Cabral Spouses a chattel mortgagee has at most only he right to redeem, and even when the
mortgage covering a Morrison English piano and a Frigidaire GM Electric second mortgagee goes through the formality of an extrajudicial
Stove as security for payment to the latter of a promissory note in the sum of foreclosure, the purchaser acquires no more than the right of
P1k executed on the same date in the Chattel Mortgage Register of Rizal on redemption from the first mortgagee.
14 Dec 1959. Meanwhile, the Evangelista spouses obtained a final money

` Page 49 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

The superiority of the mortgagee's lien over that of a subsequent mortgage. In a chattel mortgage the debtor has 10 days from notice of the
judgment creditor is now expressly provided in Rule 39, section 16 of order of foreclosure but he has no right of redemption after the sale.
the Revised Rules of Court, which states with regard to the effect of
levy on execution as to third persons that "The levy on execution shall What are the remedies of the creditor-mortgagee? Even if there is a chattel
create a lien in favor of the judgment creditor over the right, title and mortgage, he can file an action for collection of the obligation. When he
interest of the judgment debtor in such property at the time of the files the said case, he deemed to have abandoned his right to foreclose the
levy, subject to liens or encumbrances then existing." property. He can attach the same property in his action for collection of sum
of money but he will be required to produce a bond. Otherwise he will have
to wait until hearing can be conducted and the judgement will be rendered
Q: What was the understanding of the Spouses Cabral in that provision? in his favor so that he can execute all the properties of the debtor including
A: According to Spouses Evangelista, the 30 day period is a prescriptive that which was covered by the chattel mortgage.
period for Spouses Cabral to cause the foreclosure of the mortgage. The remedies available to the creditor-mortgagee are alternative in nature
However the Court ruled that the 30-day period is actually a the minimum and not cumulative. If he files an action for mortgage he cannot later on file
period for the mortgage-creditor to cause the sale or auction of the an action for foreclosure.
mortgaged property after the condition has been violated. In other words,
the said 30 day period serves as a period for the mortgagor-payor Tunaya to NORTHERN MOTORS VS. COQUIA
discharge his obligations. G.R. L-40018, December 15, 1975
Facts:
Q: How about right of redemption, is it present in a chattel mortgage? Manila Yellow Taxicab, executed a chattel mortgage over several taxicabs in
Because, recall, in real estate mortgage, the general rule is that you have favor of Northern Motors. TROPICAL is a judgment creditor of Yellow Taxicab
that 1 year from registration of sale to redeem the property. Do we have a which assigned the credit to ONG.
similar provision in a chattel mortgage? What was the ruling of the court
here? Can the property be redeemed by the mortgagor after the sale has MYT failed to pay its loan so On December 12 1974, Sheriff then levied upon
already taken place? 20 taxicabs in favor of Tropical, 8 of which are security for the chattel
mortgage. Northern Motors filed an intervention on December 18, 1974;
The 30-day period provided in Section 14 is the minimum period after the however, the levied taxicabs were sold the same day at 2pm although
violation of the mortgage condition. Ang sabi diyan, “mortgagee may after agreement shows that it should have happened at 4pm. Indemnity bond was
30 days from the condition broken,” in other words from the time of default, posted by TROPICAL, but the bond was cancelled after the sale without
you count the 30 days. From that you can now have the mortgaged property notice to Northern Motors.
sold at a public auction, provided that there is compliance with the
requirement: at least 10 days notice to the mortgagor prior to the sale; and A second levy was made upon 35 taxicabs, 7 of which are mortgaged to
posting of the public notice of the time, the place and the purpose of such Northern Motors. The taxies were levied and sold at an auction sale. The
sale. auction sale proceeded and the purchasers were of unknown addresses,
hence the 8 taxicabs cannot be recovered. The proceeds of the auction were
Why is it required under the law that these notices be given to the contested by Northern Motors. Moreover, the sheriff deducted the expenses
mortgagor? So within the 10 day period, he can redeem a property. of the execution sale from the proceeds.

Why would that be relevant? Because after the personal property is sold in Honesto Ong and City Sheriff of Manila filed a motion for the reconsideration
a public auction, no right of redemption is available. Take note of this contending that the lien of Northern Motors, as chattel mortgagee, over
distinction as to real estate mortgage. This 10-day period is a grace period certain taxicabs is not superior to the levy made on the said cabs by Honesto
for the mortgagor who has no right of redemption after the sale is held to Ong, the assignee of the unsecured judgment creditor of MYT.
discharge the mortgage obligation.
On the other hand, Northern Motors prayed that the sheriff should be
So the 30-day period is not a prescriptive period. In this case, the SC pointed required to deliver to it the proceeds of the execution sale of the mortgaged
out that the prescriptive period to foreclosure of mortgages or chattel taxicabs without deducting the expenses of execution.
mortgages is 8 years and we apply Art. 1140.
ISSUES:
There could have been no laches. Moreover, the SC mentioned that the 1. WON the expenses for the execution sale should be deducted from the
purchase of the properties at the public sale and the delivery to them with proceeds thereof. NO
the certificate of sale did not give them a superior right to the chattels. Why? 2. WON the purchaser has a better right than the creditor/mortgagee. NO
Because again it was already mortgaged. The sale conveys to the purchaser
all the right which the debtor had in such property on the day the execution HELD:
or attachment was levied. THOSE CABS CANNOT BE SOLD AT AN EXECUTION SALE BECAUSE THE LEVY
THEREON WAS WRONGFUL.
The sale that was conducted here was an execution sale – not the
foreclosure sale contemplated. If you apply the foreclosure sale in relation to Ong had no right to levy upon the mortgaged taxicabs and that he could
a chattel mortgage, then you apply Act No. 1508. have levied only upon the mortgagor's equity of redemption. The essence
of the chattel mortgage is that the mortgaged chattels should answer for the
The right of those who acquired said properties cannot and should not be mortgage credit and not for the judgment credit of the mortgagor's
superior to that of the creditor. In this case, there was an instrument of unsecured creditor. The mortgagee is not obligated to file an "independent
mortgage executed with the formalities of the law in good faith without any action" for the enforcement of his credit. To require him to do so would be a
indication of fraud. nullification of his lien and would defeat the purpose of the chattel mortgage
which is to give him preference over the mortgaged chattels for the
Again, the 30 day period is not a prescriptive period. Right of redemption satisfaction of his credit. (See art. 2087, Civil Code).
and equity of redemption: these are the terms we have used in real estate
Ong's theory that Manila Yellow Taxicab's breach of the chattel mortgage

` Page 50 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

should not affect him because he is not privy of such contract is untenable. SC emphasized that the mortgaged chattels should answer for the mortgage
The registration of the chattel mortgage is an effective and binding notice credit and not for the judgement credit of the mortgagor’s unsecured
to him of its existence or a lien which, being recorded, follows the chattel creditor. The mortgagee should not be obligated to file an independent
wherever it goes. action. To require the mortgagee to do so would be a nullification of his lien
and would defeat the purpose of the chattel mortgage which is to give him
His contention that Northern Motors was negligent because it did not sue preference over the mortgaged chattels for the satisfaction of his credit.
the sheriff within the 120-day period provided for in section 17, Rule 39 of
the Rules of Court is not correct. Such action was filed on April 14, 1975. Take note: even if Ong is not privy to the chattel mortgage, the SC said that
However, instead of Honesto Ong, his assignor Tropical Commercial such contention is untenable. Why? Because the mortgage here was duly
Corporation, was impleaded as a defendant therein. That might explain his registered and it is an effective and valid notice to him of its existence. A
unawareness of the pendency of such action. mortgage creates a real right binding against the whole world. With that,
Northern Motors has a superior right than Ong. The third party claim filed by
Ong admits "that the mortgagee's right to the mortgaged property is Northern Motors should have alerted the purchasers to the risk they were
superior to that of the judgment creditor". But he contends that the rights of taking when they took part in the auction sale. At an execution sale, the
the purchasers of the cars at the execution sale should be respected. He buyers acquire only the right of the judgement debtor which in this case was
reasons out they were not parties to the mortgage and that they acquired a mere right or equity of redemption. Those cabs should not have been
the cars prior to the mortgagee's assertion of its rights thereto. levied and sold at public auction to satisfy the judgement of such credit
The third-party claim filed by Northern Motors, Inc. should have alerted the which was inferior to the chattel mortgage. Since the cabs can no longer be
purchasers to the risk which they were taking when they took part in the recovered, the proceeds of the execution sale may be regarded as a partial
auction sale. Moreover, at an execution sale the buyers acquire only the substitute for the unrecoverable cabs to which Northern Motors is entitled
right of the judgment debtor which in this case was a mere right or equity of thereto.
redemption. The sale did not extinguish the pre-existing mortgage lien.
What happens after the property has been sold in a foreclosure of a chattel
We already held that the execution was not justified and that Northern mortgage?
Motors, as mortgagee, was entitled to the possession of the eight taxicabs.
Those cabs should not have been levied upon and sold at public auction to Who is entitled to the deficiency? Can the creditor demand for the
satisfy the judgment credit which was inferior to the chattel mortgage. deficiency?
Since the cabs could no longer be recovered because they had been
transferred to persons whose addresses are unknown, the proceeds of the PAMECA VS. CA AND DBP
execution sale may be regarded as a partial substitute for the G.R. 106435, July 14, 1999
unrecoverable cabs. Northern Motors is entitled to the entire proceeds Facts:
without deduction of the expenses of execution. PAMECA Wood Treatment Plant, Inc. obtained a loan of US$267,881.67 or
POLICY: The mortgagee has a better right over the thing mortgaged than the P2M from DBP. As security for the said loan, aside from the promissory note
judgment creditors of the mortgagor. It is improper to deduct the expenses for the said amount, a chattel mortgage was also executed over PAMECA’s
of an illegal auction from the proceeds of thereof. Proceeds of the must be properties in Dumaguete City, consisting of inventories, furniture and
delivered to the mortgagee in full. equipment, to cover the whole value of the loan.

DBP extrajudicially foreclosed the chattel mortgage, as the highest bidder, it


Q: Who is the mortgagee here? purchased the properties for P322,350.
A: Northern
DBP filed a complaint for the collection of the balance of P4,366,332.46
Q: Who is Honesto Ong? against PAMECA and private petitioners as solidary debtors with PAMECA
A: He is an assignee. under the promissory note.

Q: Was there a public sale here? By virtue of what? RTC: ordered PAMECA and private petitioners to pay P4,366,332.46, plus
A: Yes, by virtue of a judgement in favor of 21% interest per annum and other charges from April 1, 1984 until the whole
amount is paid
Q: So sale, in what nature? Was it a foreclosure sale? What is the issue
here? Who has a better right over the vehicles? CA: affirmed the RTC decision.
A: Northern Motors has a better right because there has been a third party
clam filed it. This should have alerted Honesto in purchasing the taxis. Also Issue: Can the creditor-pledgee the right to recover deficiency in case the
the Court said that Ong had no right to levy upon the mortgaged taxi cabs proceeds of the foreclosure sale are less than the amount of the principal
and that he could have only levied upon the mortgagor’s equity of obligation? Can Art. 2115 be applied to foreclosures of chattel mortgage?
redemption. The Court here discussed the essence of chattel mortgage to
the effect that it should answer for the mortgage credit and not for the Ruling:
judgement credit of the mortgagor’s unsecured creditor. Article 2115. The sale of the thing pledged shall extinguish the principal
obligation, whether or not the proceeds of the sale are equal to the amount
Q: Where do the taxi cabs stay? Isn’t it that they have been sold to of the obligation, interest and expenses in a proper case. If the price of the
unknown persons? Who will be liable to Northern Motors? sale is more than said amount, the debtor shall not be entitled to the excess,
A: … unless otherwise agreed. If the price of the sale is less, neither shall the
creditor be entitled to recover the deficiency notwithstanding any stipulation
Ong is the assignee of an unsecured judgement creditor of Manila Yellow to the contrary.
Taxicabs. There was a court action, the sale which took place was actually an
execution sale and not a foreclosure sale. However, it must be noted that THE EFFECTS OF FORECLOSURE UNDER THE CHATTEL MORTGAGE LAW RUN
there was already this mortgage in favor of Northern Motors. INCONSISTENT WITH THOSE OF PLEDGE UNDER ART. 2115. Whereas, in
pledge, the sale of the thing pledged extinguishes the entire princpal

` Page 51 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

obligation, such that the pledgor may no longer recover proceeds of the sale avail of the foreclosure of the said chattel mortgage, he is not entitled to the
in excess of the amount of the principal obligation, Section 14 of the Chattel deficiency anymore. Since the remedies in Art. 1484 are alternative in
Mortgage Law expressly entitles the mortgagor to the balance of the nature which is different if he files an action for specific performance. (?)
proceeds, upon satisfaction of the principal obligation and costs. Also take note that this rule with regard to deficiency and excess is different
from what we have discussed in a contract of pledge.
SINCE THE CHATTEL MORTGAGE LAW BARS THE CREDITOR-MORTGAGEE
FROM RETAINING THE EXCESS OF THE SALE PROCEEDS THERE IS A In this case of Pameca, I reiterate that the fact that the mortgagee was the
COROLLARY OBLIGATION ON THE PART OF THE DEBTOR-MORTGAGOR TO sole bidder of the mortgage property in a public sale does not warrant the
PAY THE DEFICIENCY IN CASE OF A REDUCTION IN THE PRICE AT PUBLIC conclusion that the transaction was attended by fraud – as fraud requires full
AUCTION. In Manila Trading and Supply Co. vs. Tamaraw Plantation Co., and convincing evidence which is not present in this case. Furthermore, since
Court “While it is true that section 3 of Act No. 1508 provides that ‘a chattel this is a public auction sale, the presumption of regularity shall be upheld in
mortgage is a conditional sale,’ it further provides that it ‘is a conditional sale the absence of any contrary evidence.
of personal property as security for the payment of a debt, or for the
performance of some other obligation specified therein. Lastly, if the property is sold, what happens to the proceeds? How will it be
applied?
Mr. Justice Kent, in the 12th Edition of his Commentaries, as well as 1. First, it will be applied to the costs and expenses of the leading the
other authors on the question of chattel mortgages, have said, that ‘in case sale,
of a sale under a foreclosure of a chattel mortgage, there is no question that 2. Second, the amount will be used to pay the obligation
the mortgagee or creditor may maintain an action for the deficiency, if any 3. If there is still an excess, names of persons holding subsequent
should occur.’ And the fact that Act No. 1508 permits a private sale, such mortgages in their order will be paid and any balance shall be paid
sale is not, in fact, a satisfaction of the debt, to any greater extent than the to be mortgagor or the person holding under him under Section 14.
value of the property at the time of the sale. The amount received at the
time of the sale, of course, always requiring good faith and honesty in the March 23, 2017 Confesor
sale, is only a payment, pro tanto, and an action may be maintained for a
deficiency in the debt.” PART XII: CONCURRENCE AND PREFERENCE OF CREDITS.

ART. 1484, CC CANNOT BE APPLIED TO THIS CASE. The said article applies So the first thing that you should take note of is that the rules here will only
clearly and solely to the sale of personal property the price of which is apply to two or more creditors and the assets of the debtor are not sufficient
payable in installments. Although Article 1484, paragraph (3) expressly bars to cover the obligation to all creditors. In these rules, it answers who among
any further action against the purchaser to recover an unpaid balance of the the creditors will be preferred?
price, where the vendor opts to foreclose the chattel mortgage on the thing
sold, should the vendee’s failure to pay cover two or more installments, this Do remember that even if the debtor is insolvent, whether natural or
provision is specifically applicable to a sale on installments. juridical, that does not mean that he doesn’t have properties anymore. He
may still have properties but only that they are not sufficient to cover all
obligations. To distinguish concurrence of credits from preference of credits,
Q: Can the creditor-mortgagee demand from the deficiency?
A: Yes. Concurrence of Credits implies the possession by two or more creditors of
equal rights or privileges over the same property or all of the property of a
Q: What is your basis? debtor.
A: The Recto Law. (wrong)
Preference of Credit is the right held by a creditor to be preferred in the
Q: Isn’t it that the Recto Law governs sale of personal property in payment of his claim above others.
installment which there is a chattel mortgage? Why will it not apply Art.  A preference is an exception to the general rule. For this reason, the
1484? Because it does not involve a sale of personal property in installment. law to preferences is strictly construed.
So what law is applicable?  Preference does not create an interest in property. It creates simply a
A: The Chattel Mortgage Law will apply. Specifically, Section 14 which right of one creditor to be paid first the proceeds of the sale of
expressly entitles the mortgagor to the balance of the proceeds, upon property as against another creditor. It creates no lien on property, and,
satisfaction of the principal obligation and costs. therefore, gives no interest in property, specific or general, to the
preferred creditor but a preference in application of
Both the chattel mortgage found in Act. 3135 do not contain any provision  the proceeds after the sale.
which prohibits the mortgagee to from recovering the deficiency.  Preference must be distinguished from lien because the latter attaches
to the property and creates an interest in the property.
In this case, Section 14 in fact of the Chattel Mortgage Law expressly entitles  The law does not give the creditor who has a preference, a right to take
the mortgagor to the balance of the proceeds, upon satisfaction of the the property or sell it as against another creditor. It is not a question of
principal obligation and costs. In other words, if sobra yung proceeds from who takes or sells; it is one of the application of the proceeds after the
the auction sale, the mortgagor is entitled to the same – which is the same sale — of payment of the debt.
rule sa real estate mortgage.
Article 2236. The debtor is liable with all his property, present and future,
Since the chattel mortgage law bars the creditor-mortgagee from retaining for the fulfillment of his obligations, subject to the exemptions provided by
the excess of the sale proceeds, there is a corollary obligation on the part of law. (1911a)
the debtor-mortgagor to pay the deficiency in case of a reduction in the
price at public auction. The creditors have the right to go after the properties of the debtor to be
able to satisfy its obligations. It may cover properties which were in
The exception is Art. 1484 wherein it involves the sale of personal property existence at the time the obligation was incurred as well as future properties.
in installment. If you take a look at Art. 1484 there are remedies provided for However, do take note, subject to the exceptions provided by law.
by law. These remedies are alternative in nature. If the unpaid seller will

` Page 52 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

What are the exceptions?


a) Family home – unless a mortgage is specifically made under such In a co-ownership, each co-owner has a specific undivided interest in the
family home property. Can his share be subject to the rules? Yes, because again, it will be
b) Right to receive support – should not be used to pay creditors covered as long as the debtor owns the property. The share of the other co-
c) Rule 39, section 13 on Properties exempt from execution owners should not be included in applying the rules.
d) Ordinary tools and implements personally used by him in his
trade, employment or livelihood Article 2240. Property held by the insolvent debtor as a trustee of an
e) 3 horses or 3 cows, or 3 carabaos, or other beasts of burden, such express or implied trust, shall be excluded from the insolvency
as the judgment obligor may select, necessarily used by him in his proceedings. (n)
ordinary occupation
f) Necessary clothing, and articles except jewelry In a trust, we have the trustee and the beneficiary. While the trustee may
g) Household furniture and utensils necessary for housekeeping, have the legal title, who is the owner of the trust? That is the beneficiary.
and used for that purpose by the judgment obligor and his family, That means, if in case the trustee is the person who is deemed insolvent, the
such as the judgment debtor may select, of a value not exceeding property entrusted to him will not be used to pay off his obligations. Why?
one hundred thousand pesos Because it belongs to the beneficiary.
h) Provisions for individual or family use sufficient for four months;
i) The professional libraries of judges, lawyers, physicians, Now, let’s go to the classification of credits. So general classification of
pharmacists, dentists, engineers, surveyors, clergymen, teachers, credits, you have-
and other professionals, not exceeding three hundred thousand (1) Special preferred credits under Art. 2241 and 2242
pesos in value; It is special and preferred in the sense that these credits are related
j) One fishing boat and accessories, not exceeding the total value of to a specific movable property under 2241, and immovable under
one hundred thousand pesos, owned by a fisherman and by the 2242 to which they will be given preference to the sale of the
lawful use of which he earns his livelihood; property involved.
k) So much of the salaries, wages, or earnings of the judgment (2) Ordinary preferred credits under Art. 2244
debtor for his personal services within the four months preceding There is a hierarchy of preference but they are not attached to a
the levy as are necessary for the support of his family; specific property. In other words, all the assets not covered under
l) Lettered gravestones; 2241 and 2242, the property will be sold and the proceeds will be
m) Moneys, benefi ts, privileges, or annuities accruing or in any distributed under 2244.
manner growing out of any life insurance; (3) Common credits under Art. 2245
n) The right to receive legal support, or money or property obtained
as such support, or any pension or gratuity from the government; Article 2241. With reference to specific movable property of the debtor,
o) Properties especially exempted by law. the following claims or liens shall be preferred:
p) Lands subject to the public land act. One issued by the
government within 5 years.
(1) Duties, taxes and fees due thereon to the State or any subdivision
So those are instances where the properties cannot be included for the thereof;
(2) Claims arising from misappropriation, breach of trust, or malfeasance
purpose of applying the concurrence and preference of credits.
by public officials committed in the performance of their duties, on
the movables, money or securities obtained by them;
Article 2237. Insolvency shall be governed by special laws insofar as they
(3) Claims for the unpaid price of movables sold, on said movables, so
are not inconsistent with this Code. (n)
long as they are in the possession of the debtor, up to the value of the
same; and if the movable has been resold by the debtor and the price
We had the insolvency law, Act. No. 1956 but now superseded by "FRIA"-
is still unpaid, the lien may be enforced on the price; this right is not
Republic Act 10142 (Financial Rehabilitation and Insolvency Act of 2010). It
lost by the immobilization of the thing by destination, provided it has
provides for the procedure for rehabilitation, insolvency, liquidation of the
not lost its form, substance and identity; neither is the right lost by
assets of the debtor, as well as suspension of payments.
the sale of the thing together with other property for a lump sum,
when the price thereof can be determined proportionally;
Article 2238. So long as the conjugal partnership or absolute community (4) Credits guaranteed with a pledge so long as the things pledged are in
subsists, its property shall not be among the assets to be taken possession the hands of the creditor, or those guaranteed by a chattel mortgage,
of by the assignee for the payment of the insolvent debtor's obligations, upon the things pledged or mortgaged, up to the value thereof;
except insofar as the latter have redounded to the benefit of the family. If (5) Credits for the making, repair, safekeeping or preservation of personal
it is the husband who is insolvent, the administration of the conjugal property, on the movable thus made, repaired, kept or possessed;
partnership or absolute community may, by order of the court, be (6) Claims for laborers' wages, on the goods manufactured or the work
transferred to the wife or to a third person other than the assignee. done;
(7) For expenses of salvage, upon the goods salvaged;
Remember the properties covered by the conjugal properties or absolute (8) Credits between the landlord and the tenant, arising from the
community, they do not belong to the individual spouses but rather to the contract of tenancy on shares, on the share of each in the fruits or
CPG or ACP. Such properties may be exempted to pay off the specific harvest;
obligations of the respective spouses unless it is proven that it has (9) Credits for transportation, upon the goods carried, for the price of the
redounded to the benefit of the family. contract and incidental expenses, until their delivery and for thirty
days thereafter;
How about co-ownership under 2239? (10) Credits for lodging and supplies usually furnished to travellers by
Article 2239. If there is property, other than that mentioned in the hotel keepers, on the movables belonging to the guest as long as such
preceding article, owned by two or more persons, one of whom is the movables are in the hotel, but not for money loaned to the guests;
insolvent debtor, his undivided share or interest therein shall be among the (11) Credits for seeds and expenses for cultivation and harvest advanced
assets to be taken possession of by the assignee for the payment of the to the debtor, upon the fruits harvested;
insolvent debtor's obligations. (n) (12) Credits for rent for one year, upon the personal property of the lessee

` Page 53 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

existing on the immovable leased and on the fruits of the same, but Cordova filed a complaint against private respondents in the receivership
not on money or instruments of credit; proceedings with the SEC for the return of the shares.
(13) Claims in favor of the depositor if the depositary has wrongfully sold
the thing deposited, upon the price of the sale. In 1998, SEC dismissed the petition, but granted it upon reconsideration. It
held that Cordova was the owner of the CSPI shares by virtue of a
confirmation sale (which was considered as a deed of assignment) issued to
In the foregoing cases, if the movables to which the lien or preference
him by Philfinance. But since the shares had already been sold and proceeds
attaches have been wrongfully taken, the creditor may demand them from
commingled with other assets of Philfinance, Cordova’s status was converted
any possessor, within thirty days from the unlawful seizure. (1922a)
into that of an ordinary creditor for the value of such shares.

ISSUES:
The first thing that you should remember under 2241 is that it does not
1. whether petitioner should be considered as a preferred (and secured)
provide for a hierarchy of preferences. Why is it considered special preferred
creditor of Philfinance;
credits? Because these credits are preferred with regard to the proceeds of
2. whether petitioner can recover the full value of his CSPI shares or
specific personal property. Why? As among these 13 credits enumerated,
merely 15% thereof like all other ordinary creditors of Philfinance
no.2 is not preferred over no. 3 or no. 4, etc. Except for number 1. Why?
Because that is preferred among other credits as provided under Art. 2243.
HELD: petitioner had become an ORDINARY creditor of Philfinance. Certainly,
petitioner had the right to demand the return of the shares. He filed a
Article 2243. The claims or credits enumerated in the two preceding complaint in the liquidation proceedings. He sought instead to recover their
articles shall be considered as mortgages or pledges of real or personal monetary value.
property, or liens within the purview of legal provisions governing
insolvency. Taxes mentioned in No. 1, article 2241, and No. 1, article 2242, The CSPI shares were specific or determinate movable properties. But after
shall first be satisfied. (n) they were sold, the money raised from the sale became generic and were
commingled with other assets of Philfinance. Unlike shares of stock, money
 Some excerpts from 2016 TSN is generic. This means that once a certain amount is added to the cash
Taxes and duties shall be first satisfied. That means the proceeds arising balance, one can no longer pinpoint the specific amount included which then
from the sale of a specific property pambayad sa taxes due. So, what becomes part of a whole mass of money.
happens here? If you have a car the value of which is P2 million and you have
the following liabilities- taxes and duties, sabihin natin luxury car so let us say It thus became impossible to identify the exact proceeds of the sale of the
it has an unpaid balance of duties of P500,000 and then let us say it is subject CSPI shares. Petitioner’s only remedy was to file a claim on the whole mass
to a chattel mortgage, P500,000. Let us say there was also an unpaid price of these assets, to which unfortunately all other creditors of Philfinance also
amounting to P500,000. What are the other credits here, for example had a claim.
expenses for repairs, P500,000. and then another expenses, let us say
safekeeping of the vehicle, also P500,000. So what do we have here? The Petitioner’s right of action against Philfinance was a “claim” properly to be
liabilities exceed the value of the movable property. litigated in the liquidation proceedings. He had a right to the payment of the
value of his shares. His demand was of a pecuniary nature since he was
*So if it is sold for P2 million, how would the proceeds be applied? So first, claiming the monetary value of his shares. It was in this sense that he was a
you apply it to the taxes and duties. So that would mean from P2 million creditor of Philfinance.
minus P500,000, P1.5 million nalang. share sila diyan(the remaining
liabilities). So pro-rata sila. So (P500,000/P2,000,000) times P1.5 million so Like all the other ordinary creditors or claimants against Philfinance, he was
that is P375,000. So out of the liability for example covered by the chattel entitled to a rate of recovery of only 15% of his money claim.
mortgage, P375,000 would come from the proceeds of sale of the movable
property. What happens to the balance of P125,000? It is not extinguished Q1: what would be the advantage if Cordova is deemed a preferred creditor?
but doon na siya mahulog sa other credits. Hindi na siya special preferred. It A1: the advantage would be---if he would be an ordinary creditor the
would now share together with the common credits. Ma’am says she will not governing law would be 2245 which merely provides for pro-rata, unlike if a
ask these types of computation questions in the exam  preferred creditor which is entitled to the value of his claim.

Art. 2241 and 2242 do not give preference, order or priority of payment, Q2: What was the ruling of Court? Is Cordova an ordinary creditor in which
hindi yan siya 1,2,3,4 and 5. Una lang yung duties and taxes due to the 2245 will apply or 2241?
government in relation to that movable property. All the rest will concur to A2: He is an ordinary creditor, and hence he has no preference under Article
the remaining proceeds of the sale of the subject property. 2245:Credits of any other kind or class, or by any other right or title not
comprised in the four preceding articles, shall enjoy no preference. This
being so, Article 2251 (2) states that: Common credits referred to in Article
CORDOVA vs REYES 2245 shall be paid pro rata regardless of dates.Like all the other ordinary
creditors or claimants against Philfinance, he was entitled to a rate of
FACTS: Jose Cordova bought from Philfinance certificates of stock of recovery of only 15% of his money claim.
Celebrity Sports Plaza Inc (CSPI) and shares of stock of other corporations.
CSPI shares were delivered to former Filmanbank and Philtrust Banks (as So here we have Cordova who is deemed as an ordinary creditor of
custodian banks to hold the shares in behalf of Cordova). PhiFinance and not as a preferred creditor. While it is true that shares of
petitioner were specific or determinate, it must be noted that the same is
In 1981, Philfinance was placed under receivership by SEC. Thereafter, already sold. He cannot claim preference or priority over the proceeds of the
private respondents Reyes and Atty Wendell Coronel were appointed as said shares. However, the effect is that the money raised from the said sale
liquidators. In 1991, without the knowledge and consent of Cordova and became generic. And as such were commingled with the assets of
without authority from SEC, private respondents withdrew the CSPI shares PhilFinance. So here, remember to apply 2241, it must refer to a specific
from the custodian banks. They subsequently sold the shares to Northeast movable property. While money is a movable property, it is not specific or
Corporation and included the proceeds thereof in the funds of Philfinance. determinate. It is already a generic thing, so the claim of Cordova was for the

` Page 54 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

payment of money. Therefore 2241 is not applicable, but rather 2245 and is Also take note of this term, refectionary credit. A refectionary credit is an
deemed an ordinary creditor. What is the difference here? Because if indebtedness incurred for the repair or reconstruction of something
mahulog 2245, common credits shall be paid pro-rata regardless of the dates. previously made such as a repair or construction made necessary by the
And you only have to consider kung meron bang maiwan na assets si debtor deterioration or destruction of the property. This credit may be applied to
after the payment of the credits under 2241, 2242, and later on 2244. Kung Art. 2241 and 2242, yung expenses for improvements and repairs.
wala na matira, wala ng paghatian ang common creditors under 2245. Under
the facts of this case, konti nalang naiwan in which like all creditors, the rate Now we have the case of Barretto vs Villanueva-
of recovery is only 15% of their respective money claims.
BARRETO vs VILLANUEVA
Article 2242. With reference to specific immovable property and real rights
of the debtor, the following claims, mortgages and liens shall be preferred, FACTS: Rosario Cruzado sold all her right, title, and interest and that of her
and shall constitute an encumbrance on the immovable or real right: children in the house and lot herein involved to Villanueva for P19K. The
(1) Taxes due upon the land or building; purchaser paid P1,500 in advance, and executed a promissory note for the
(2) For the unpaid price of real property sold, upon the immovable balance. However, the buyer could only pay P5,500 on account of the note,
sold; for which reason the vendor obtained judgment for the unpaid balance. In
(3) Claims of laborers, masons, mechanics and other workmen, as the meantime, the buyer Villanueva was able to secure a clean certificate of
well as of architects, engineers and contractors, engaged in the title and mortgaged the property to Barretto to secure a loan of P30K, said
construction, reconstruction or repair of buildings, canals or mortgage having been duly recorded.
other works, upon said buildings, canals or other works;
(4) Claims of furnishers of materials used in the construction, Villanueva defaulted on the mortgage loan in favor of Barretto. The latter
reconstruction, or repair of buildings, canals or other works, foreclosed the mortgage in her favor, obtained judgment, and upon its
upon said buildings, canals or other works; becoming final asked for execution. Cruzado filed a motion for recognition
(5) Mortgage credits recorded in the Registry of Property, upon the for her "vendor's lien" invoking Articles 2242, 2243, and 2249 of the new
real estate mortgaged; Civil Code. After hearing, the court below ordered the "lien" annotated on
(6) Expenses for the preservation or improvement of real property the back of the title, with the proviso that in case of sale under the
when the law authorizes reimbursement, upon the immovable foreclosure decree the vendor's lien and the mortgage credit of appellant
preserved or improved; Barretto should be paid pro rata from the proceeds.
(7) Credits annotated in the Registry of Property, in virtue of a
judicial order, by attachments or executions, upon the property ISSUE: Won a proceeding, like an insolvency proceeding, is required before
affected, and only as to later credits; claims of preferred creditors could be ascertained?
(8) Claims of co-heirs for warranty in the partition of an immovable
among them, upon the real property thus divided; HELD:
(9) Claims of donors or real property for pecuniary charges or other Under the system of the Civil Code of the Philippines, only taxes enjoy a
conditions imposed upon the donee, upon the immovable similar absolute preference. All the remaining thirteen classes of preferred
donated; creditors under Article 2242 enjoy no priority among themselves, but must
(10) Credits of insurers, upon the property insured, for the insurance be paid pro-rata i.e., in proportion to the amount of the respective credits.
premium for two years. (1923a)
The full application of Articles 2249 and 2242 demands that there must be
first some proceedings where the claims of all the preferred creditors may
First, taxes due upon the building. Again that is the priority. All the rest will be bindingly adjudicated, such as:
concur.(same concept under Art. 2241) *repeats the illustration under Art. 1. insolvency,
2241 but changed subject property from a car to a house and lot. 2. the settlement of decedents estate under Rule 87 of the
Rules of Court, or
Using the same example let’s say instead of a car, we have a parcel of land. 3. other liquidation proceedings of similar import.
 Fare market value is 1.5m,
 Real property Taxes is 500k, This explains the rule of Article 2243 of the new Civil Code that —
 unpaid price of 200k, The claims or credits enumerated in the two preceding articles" shall be
 REM of 500k, considered as mortgages or pledges of real or personal property, or liens
 unpaid laborers, architects, etc is 300k. within the purview of legal provisions governing insolvency.

If these are the credits in relation to a specific real or immovable property, And the rule is further clarified in the Report of the Code Commission, as
and then this property is sold for 1.5m  again, walang problema. Bayaran follows:
silang lahat. But what if let us say, meron pang unpaid laborers 500k. so The question as to whether the Civil Code and the insolvency Law can be
kulang ito. Again, priority, real property taxes, you still have 1m remaining, harmonized is settled by Article 2243. The preferences named in Articles
but the remaining credit is 1.2m. so anong mangyari ditto? 200k over 1m. 2261 and 2262 (now 2241 and 2242) are to be enforced in accordance with
200k x1m. 1/6 over 1m. yung portion nay un pambayad. What about the the Insolvency Law."
remaining balance of this 200 kasi di man sya manfully-paid. Mahulug siya
dun sa other credits if under 2244 or 2245 kung di siya mag-apply sa 2244. If Thus, it becomes evident that one preferred creditor's third-party claim to
the proceeds in relation to the sale of specific immovable or movable the proceeds of a foreclosure sale (as in the case now before us) is not the
property are not sufficient for specially preferred credits, it does not mean proceeding contemplated by law for the enforcement of preferences under
that it will not be paid with the remaining balance at all. Because the latter is Article 2242, unless the claimant were enforcing a credit for taxes that enjoy
pwede masalo sa 2244 or 2245. Again, that is if meron pang properties si absolute priority. If none of the claims is for taxes, a dispute between two
debtor which can be sold to pay of the other credits. creditors will not enable the Court to ascertain the pro-rata dividend
corresponding to each, because the rights of the other creditors likewise"
enjoying preference under Article 2242 cannot be ascertained.

` Page 55 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

There being no insolvency or liquidation, the claim of the appellee, as unpaid ISSUE: whether or not Ramos is entitled to claim a pro-rata share in the
vendor, did not require the character and rank of a statutory lien co-equal to value of the property in question? NO
the mortgagee's recorded encumbrance, and must remain subordinate to
the latter. RULING: Concurrence of credits occurs when the same specific property of
the debtor or all of his property is subjected to the claims of several
So what I want to emphasize here, under Art. 2242 no priority for those creditors. The concurrence of credits raises no questions of consequence
credits mentioned therein except for taxes. The recurring theme as can be were the value of the property or the value of all assets of the debtor is
observed in the cases is to be able to apply the rules, there must be a sufficient to pay in fall all the creditors. However, it becomes material when
proceeding where the claims of the creditors may be validly adjudicated. In said assets are insufficient for then some creditors of necessity will not be
the absence of insolvency proceedings (or other equivalent general paid or some creditors will not obtain the full satisfaction of their claims. In
liquidation of the debtor's estate), the conflict between the parties now this situation, the question of preference will then arise, that is to say who of
before us must be decided pursuant to the well established principle the creditors will be paid the all of the others.
concerning registered lands; that a purchaser in good faith and for value (as
the appellant concededly is) takes registered property free from liens and The proceedings in the court below do not partake of the nature of the
encumbrances other than statutory liens and those recorded in the insolvency proceedings or settlement of a decedent’s estate. The action filed
certificate of title. There being no insolvency or liquidation, the claim of the by Ramos was only to collect the unpaid cost of the construction of the
appellee, as unpaid vendor, did not require the character and rank of a duplex apartment. It is far from being a general liquidation of the estate of
statutory lien co-equal to the mortgagee's recorded encumbrance, and must the Tabligan spouses.
remain subordinate to the latter.
Insolvency proceedings and settlement of a decedent’s estate are both
proceedings in rem which are binding against the whole world. All persons
PHILIPPINE SAVINGS vs LANTIN having interest in the subject matter involved, whether they were notified or
not, are equally bound. Consequently, a liquidation of similar import or
FACTS:Involved in this case is a duplex-apartment house on a lot covered by "other equivalent general liquidation’ must also necessarily be a proceeding
TCT No. 86195 situated at San Diego Street, Sampaloc, Manila, and owned by in rem so that all interested persons whether known to the parties or not
the spouses Filomeno and Socorro Tabligan. may be bound by such proceeding.

The duplex-apartment house was built for the spouses by private respondent In the case at bar, although the lower court found that "there were no
Candido Ramos, a duly licensed architect and building contractor, at a total known creditors other than the plaintiff and the defendant herein", this
cost of P32,927.00. The spouses paid private respondent the sum of cannot be conclusive. It will not bar other creditors in the event they show
P7,139.00 only. Hence, the latter used his own money, P25,788.50 in all, to up and present their claims against the petitioner bank, claiming that they
finish the construction of the duplex-apartment. also have preferred liens against the property involved. Consequently,
Transfer Certificate of Title No. 101864 issued in favor of the bank which is
Meanwhile, the spouses Tabligan obtained from petitioner Philippine Savings supposed to be indefeasible would remain constantly unstable and
Bank three (3) loans in the total amount of P35,000.00, the purpose of which questionable. Such could not have been the intention of Article 2243 of the
was to complete the construction of the duplex-apartment. Civil Code although it considers claims and credits under Article 2242 as
statutory liens. Neither does the De Barretto case sanction such instability.
On December 19, 1966, the petitioner registered the December 16, 1966
deed of real estate mortgage with the Register of Deeds of Manila. At the Q1: what kind of proceeding is required to apply these provisions (2241,
time of the registration of these mortgages, Transfer Certificate of Title No. 2242)?
86195 was free from all liens and encumbrances. A1: it is not necessary to be an insolvency proceeding, but a proceeding that
would adjudicate the claims of all the creditors. It may cover a proceeding
The spouses failed to pay their monthly amortizations. As a result thereof, regarding the estate of a deceased person, for example.
the petitioner bank foreclosed the mortgages, and at the public auction held
on July 23, 1969, was the highest bidder. Q2: was there such kind of proceeding here?
A2: None. The proceedings did not partake of the nature of the insolvency
Upon the other hand, the private respondent filed an action against the proceedings or settlement of a decedent’s estate. The action filed by Ramos
spouses to collect the unpaid cost of the construction of the duplex- was only to collect the unpaid cost of the construction of the duplex
apartment. During its pendency, the private respondent succeeded in apartment. It is far from being a general liquidation of the estate of the
obtaining the issuance of a writ of preliminary attachment, and pursuant Tabligan spouses.
thereto, had the property in question attached. Consequently, a notice of
adverse claim was annotated at the back of Transfer Certificate of Title No. Again take note, Concurrence of credits occurs when the same specific
86195. property of the debtor or all of his property is subjected to the claims of
several creditors. The concurrence of credits raises no questions of
On August 26, 1968, a decision was rendered in Civil Case No. 69228 in favor consequence were the value of the property or the value of all assets of the
of the private respondent and against the spouses. A writ of execution was debtor is sufficient to pay in fall all the creditors. However, it becomes
accordingly issued but was returned unsatisfied. material when said assets are insufficient for then some creditors of
necessity will not be paid or some creditors will not obtain the full
As the spouses did not have any properties to satisfy the judgment in Civil satisfaction of their claims. In this situation, the question of preference will
Case No. 69228, the private respondent addressed a letter to the petitioner then arise, that is to say who of the creditors will be paid the all of the others.
for the delivery to him (private respondent) of his pro-rata share in the value
of the duplex-apartment in accordance with Article 2242 of the Civil Code. As emphasize in the Barretto case and here in the case of Philippine Savings,
The petitioner refused to pay the pro-rata value prompting the private there must be some proceeding where the claims of all the preferred
respondent to file the instant action. A decision was rendered in favor of the creditors may be bindingly adjudicated such as an insolvency proceeding or
private Respondent. settlement of estate or other liquidation proceedings. Now here it is merely
an action for collection. Although the lower court found that there were no

` Page 56 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

known creditors other than Philippine Savings and Ramos, this cannot be building or other immovable property constructed.
conclusive. It will not bar other creditors to show up and present their claims
against the bank claiming also they have preferred liens. However, Article 2242 only finds application when there is a concurrence of
credits, i.e. when the same specific property of the debtor is subjected to the
In this case, the foreclosure was proper. Now both these cases of Barretto claims of several creditors and the value of such property of the debtor is
and Philippine Savings emphasize the indefeasibility of a certificate of insufficient to pay in full all the creditors. In such a situation, the question of
Torrens title. So, it is indefeasible and to rule otherwise in favor of applying preference will arise, that is, there will be a need to determine which of the
these rules on preference of credits would make the title to one's property creditors will be paid ahead of the others. Fundamental tenets of due
unstable and questionable. Because anytime somebody would alleged that I process will dictate that this statutory lien should then only be enforced in
have this preferred claim under Art. 2242. So here it is emphasizes the the context of some kind of a proceeding where the claims of all the
principle that the purchaser in good faith and for value takes registered land preferred creditors may be bindingly adjudicated, such as insolvency
free from liens and encumbrances, other than statutory lien and those proceedings.
recorded on the certificate of title, in respecting the indefeasibility of such
title. So those enumerated under Art. 2241 and 2242 would be considered as This is made explicit by Article 2243 which states that the claims and liens
mortgages or pledges in a sense that is really a lien or encumbrance of a enumerated in articles 2241 and 2242 shall be considered as mortgages or
specific property. And this Art. 2243 is the basis. So what we have discussed pledges of real or personal property, or liens within the purview of legal
earlier, the taxes in relation to the property are preferred. It shall be satisfied provisions governing insolvency.
first. All the rest will concur.
The action filed by petitioners in the trial court does not partake of the
nature of an insolvency proceeding. It is basically for specific performance
J.L. BERNARDO VS CA and damages. Thus, even if it is finally adjudicated that petitioners herein
actually stand in the position of unpaid contractors and are entitled to
FACTS: Sometime in 1990, the municipal government of San Antonio, Nueva invoke the contractor’s lien granted under Article 2242, such lien cannot be
Ecija approved the construction of the San Antonio Public Market. enforced in the present action for there is no way of determining whether or
not there exist other preferred creditors with claims over the San Antonio
On April 20, 1990, J.L. Bernardo Construction, thru petitioner Santiago Sugay, Public Market. The records do not contain any allegation that petitioners are
submitted its bid together with other qualified bidders. After evaluating the the only creditors with respect to such property. The fact that no third party
bids, the municipal pre-qualification bids and awards committee, headed by claims have been filed in the trial court will not bar other creditors from
respondent Jose L. Salonga (then incumbent municipal mayor of San subsequently bringing actions and claiming that they also have preferred
Antonio) as Chairman, awarded the contract to petitioners. On June 8, 1990, liens against the property involved.
a Construction Agreement was entered into by the Municipality of San
Antonio thru respondent Salonga and petitioner J.L. Bernardo Construction. Q1: How about the fact that there were no other creditors or 3rd parties
asserting claims over the markert?
It is claimed by petitioners that under this Construction Agreement, the A1: Although there were no other claims over the market, it does not bar
Municipality agreed to assume the expenses for the demolition, clearing and other creditors from subsequently claiming because this is a specific
site filling of the construction site in the amount of P1,150,000 and, in performance case and not adjudication of claims.
addition, to provide cash equity of P767,305.99 to be remitted directly to
petitioners. In this case although it is stated under paragraph 3(of Art. 2242), it only
applies when there is concurrence of credits and as defined here in this case,
Petitioners allege that, although the whole amount of the cash equity there is concurrence of credits if the same specific property of the debtor is
became due, the Municipality refused to pay the same, despite repeated subjected to the claims of several creditors and the value of such property of
demands and notwithstanding that the public market was more than ninety- the debtor is insufficient to pay in full all the creditors in such a situation. The
eight percent (98%) complete as of July 20, 1991. question of preference will arise if there is a need to determine which among
the creditors should be paid ahead of the others. However in this case, due
On July 31, 1991, J.L. Bernardo Construction filed a complaint for breach of process dictates that this statutory lien will only be enforced in the context
contract, specific performance, and collection of a sum of money, with of some proceeding where the claims of all preferred creditors will be
prayer for preliminary attachment and enforcement of contractors lien bindingly adjudicated such as an insolvency proceeding. In this case the
against the Municipality of San Antonio, Nueva Ecija and Salonga, in his action filed by J.L. Bernardo does not partake the nature of an insolvency
personal and official capacity as municipal mayor. proceeding because it is only an action for specific performance and there is
no way in determining whether or not other preferred creditors exist.
On September 5, 1991, the Regional Trial Court issued the writ of preliminary
attachment prayed for by plaintiffs. It also granted J.L. Bernardo The action filed by petitioners in the trial court does not partake of the
Construction the right to maintain possession of the public market and to nature of an insolvency proceeding. It is basically for specific performance
operate the same. and damages. Thus, even if it is finally adjudicated that petitioners herein
actually stand in the position of unpaid contractors and are entitled to
ISSUE: Whether or not the grant of writ of attachment and the contractor’s invoke the contractors lien granted under Article 2242, such lien cannot be
lien proper? enforced in the present action for there is no way of determining whether or
not there exist other preferred creditors with claims over the San Antonio
HELD: There is no contractor’s lien in favor of petitioners. Public Market. The records do not contain any allegation that petitioners are
the only creditors with respect to such property. The fact that no third party
Articles 2241 and 2242 of the Civil Code enumerates certain credits which claims have been filed in the trial court will not bar other creditors from
enjoy preference with respect to specific personal or real property of the subsequently bringing actions and claiming that they also have preferred
debtor. Specifically, the contractor’s lien claimed by petitioners is granted liens against the property involved.
under the third paragraph of Article 2242 which provides that the claims of
contractors engaged in the construction, reconstruction or repair of Similar to the earlier case of Philippine Savings Bank. So do take note here
buildings or other works shall be preferred with respect to the specific that it does not mean that the obligation in favor of the contractor will now

` Page 57 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

be extinguished. This case just tells us that we cannot use 2242 to assert
contractor’s lien over the proceeds of the sale of the property. The trial court Q1: Was the notice of lis pendens here proper or not? SC notes of the
can still rule that the contractor as in this case is still entitled to be paid. But instances when notice of lispendensmay be availed of; these are,
it would still depend if there are other properties of the debtor that can be a) In an action to recover possession of real estate;
executed to pay the obligation. b) An action for partition;
c) Any other court proceedings that directly affect the title to
the land or the building thereon or the use of the
Atlantic vs. Herbal Cove occupation thereof.

FACTS: In 1996, Atlantic Erectors (AE) and Herbal Cove (HCC) entered into a Even though we call this contractor’s lien, it does not create a lien or interest
contract to construct townhouses. HCC was not able to complete the project over the subject property. Now, 2242 cannot be applied in this case. . The
in time. AE then filed for damages and won the suit. HCC was ordered to pay Complaint merely asked for the payment of construction services and
in damages and fees. The cause of action is a money claim by only one materials plus damages, without mentioning -- much less asserting -- a lien
creditor. In 1997, AE caused a notice of lispendens on several TCTs, which or an encumbrance over the property. Verily, it was a purely personal action
carried over when the lots were further divided into 50 lots. In 1998, HCC and a simple collection case. It did not contain any material averment of any
filed a motion to cancel the notice of lispendens, as AE’s action is purely a enforceable right, interest or lien in connection with the subject property.
personal action to collect a sum of money and damages, and does not
directly affect title to, use or possession of real property. Moreover again, in similar cases, Article 2242 finds application when there
is a concurrence of credits, i.e., when the same specific property of the
In opposition, AE argued that the money claim constitutes a lien that can debtor is subjected to the claims of several creditors and the value of such
be enforced to secure payment for the said obligations. It argues that, to property of the debtor is insufficient to pay in full all the creditors. In such a
preserve the alleged improvement it had made on the subject land, such situation, the question of preference will arise, that is, there will be a need to
annotation on the property titles of respondent is necessary. On the other determine which of the creditors will be paid ahead of the
hand, HCC argues that the annotation is bereft of any factual or legal basis, others. Fundamental tenets of due process will dictate that this statutory
because the action does not directly affect the title to the property, or the lien should then only be enforced in the context of some kind of a
use or the possession thereof. The annotation is baseless and cannot be proceeding where the claims of all the preferred creditors may be bindingly
made through the enforcement of a contractor’s lien under Art. 2242 as said adjudicated, such as insolvency proceedings.
provision applies only to cases in which there are several creditors carrying
on a legal action against an insolvent debtor. Neither Article 2242 of the Civil Code nor the enforcement of the lien
thereunder is applicable here, because petitioners Complaint failed to satisfy
ISSUE: WON money claims representing cost of materials and labor are the foregoing requirements. Nowhere does it show that respondents
proper liens for annotations of lispendens on the property title. property was subject to the claims of other creditors or was insufficient to
pay for all concurring debts. Moreover, the Complaint did not pertain to
RULING: No. insolvency proceedings or to any other action in which the adjudication of
claims of preferred creditors could be ascertained.
As a general rule, the only instances in which a notice of lispendens may be
availed of are as follows: (a) an action to recover possession of real estate;
(b) an action for partition; and (c) any other court proceedings that directly Development Bank vs. CA
affect the title to the land or the building thereon or the use or the
occupation thereof. FACTS: Marinduque Mining-Industrial Corporation obtained from PNB and
DBP various loan accommodations. To secure the loans, Marinduque Mining
A careful examination of petitioner's Complaint, as well as the reliefs it mortgaged to PNB and DBP all its real and personal properties. Marinduque
seeks, reveals that no such lien or interest over the property was ever Mining failed to settle its loan obligations, thus PNB and DBP instituted
alleged. The Complaint merely asked for the payment of construction sometime on July and August 1984 extrajudicial foreclosure proceedings
services and materials plus damages, without mentioning -- much less over the mortgaged properties.
asserting -- a lien or an encumbrance over the property. Verily, it was a
purely personal action and a simple collection case. It did not contain any In the meantime, between July 1982 to October 1983, Marinduque Mining
material averment of any enforceable right, interest or lien in connection purchased and caused to be delivered construction materials and other
with the subject property. merchandise from Remington Industrial Sales Corporation The purchases
remained unpaid as of August 1, 1984 when Remington filed a complaint for
Even assuming that petitioner had sufficiently alleged such lien or a sum of money and damages against Marinduque Mining for the value of
encumbrance in its Complaint, the annotation of the Notice of Lis Pendens the unpaid construction materials and other merchandise purchased by
would still be unjustified, because a complaint for collection and damages is Marinduque Mining. Remington's original complaint was later amended to
not the proper mode for the enforcement of a contractor's lien. implead PNB and DBP in view of the foreclosure by the latter of the real and
Fundamental tenets of due process will dictate that this statutory lien should chattel mortgages).
then only be enforced in the context of some kind of a proceeding where the
claims of all the preferred creditors may be bindingly adjudicated, such as ISSUE: WON Remington can enforce its claim (for the payment of the
insolvency proceedings. construction materials purchasedby Marinduque Mining) against DBP.

Article 2242 finds application when there is a concurrence of credits, i.e., RULING: No.
when the same specific property of the debtor is subjected to the claims of Remington cannot enforce its lien against DBP because there was no
several creditors and the value of such property of the debtor is insufficient liquidation proceeding. The liquidation proceeding contemplated by the CC
to pay in full all the creditors. In such a situation, the question of preference is not the extrajudicial foreclosure done by DBP over Marinduque Mining’s
will arise, that is, there will be a need to determine which of the creditors properties. The kind of proceeding contemplated is where the claims of all
will be paid ahead of the others. In this case, there is no concurrence of the preferred creditors may be bindingly adjudicated, such as insolvency, the
credit since there is only one creditor. settlement of decedent's estate under Rule 87 of the Rules of Court, or other

` Page 58 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

liquidation proceedings of similar import. The extrajudicial foreclosure subject of litigation. These credits shall have preference
instituted by PNB and DBP is not the liquidation proceeding contemplated by among themselves in the order of priority of the dates of the
the Civil Code; thus, Remington cannot claimits pro rata share from DBP and instruments and of the judgments, respectively.
PNB.
So it is clear that Art. 2244 emphasizes order of preference in the order
Q1: what’s the role of DBP here?
named. However, we have to take note of these services rendered by
A1: it is a preferred creditor.
employees, labourers, and household helpers, we have the case of DBP v
NLRC.
Q2: but there’s no proceeding?
A2: Here, Remmington can only go after---
DBP vs. NLRC
Q3: What’s the basis of DBP’s rights over the proceeds over the properties?
FACTS:
Because again, it is a mortgagee who foreclosed the property. That
Leonor Ang is an employee of petitioner Tropical Philippine Woods
foreclosure proceeding is not the one contemplated by law to apply the
Industries, Inc. (TPWII).
rules on preference of credits.
DBP, a mortgagee of TPWII foreclosed the latter’s plant, equipments , and
In relation to concurrence and preference of credits, again it is emphasized
facilities. As a result, the operations of stopped and Leonor Ang was verbally
that in the absence of any liquidation proceeding, the claim of the creditor
terminated.
cannot be enforced against any mortgagee in good faith. As in the
extrajudicial foreclosure executed by PNB and DBP is not the liquidation
On December 14, 1987 aggrieved by the termination of her employment,
proceeding contemplated by the Civil Code, then Remington cannot claim its
private respondent filed with the Labor Arbiter a complaint for separation
pro-rata share from DBP.
pay, 13th month pay, vacation and sick leave pay, salaries and allowances
against TPWII, its General Manager, and Tropical.
Take note when to apply Arts. 2241 and 2242. Now let’s take a look at Art.
2244. It refers to ordinary preferred credits. Unlike to Arts. 2241 and 2241,
Tropical was held subsidiarily liable by LA for the unpaid wages applying
Art. 2244 must be in order.
Art. 110 of the Labor Code. Thus, Tropical now questions the application of
said labor code provision which refers to worker preference in case of
Art. 2244. With reference to other property, real and personal, of the
bankruptcy or liquidation of an employer's business against a mortgage.
debtor, the following claims or credits shall be preferred in the order
named:
ISSUE: WON Article 110 of the Labor Code is applicable in the case.
1) Proper funeral expenses for the debtor, or children under his
RULING:
or her parental authority who have no property of their own,
NO
when approved by the court;
Art. 110 should not be treated apart from other laws but applied in
2) Credits for services rendered the insolvent by employees,
conjunction with the pertinent provisions of the Civil Code and the
laborers, or household helpers for one year preceding the
Insolvency Law to the extent that piece-meal distribution of the assets of the
commencement of the proceedings in insolvency;
debtor is avoided.
3) Expenses during the last illness of the debtor or of his or her
spouse and children under his or her parental authority, if
A declaration of bankruptcy or a judicial liquidation must be present before
they have no property of their own;
the worker's preference may be enforced. Thus, Article 110 of the Labor
4) Compensation due the laborers or their dependents under
Code and its implementing rule cannot be invoked by the respondents in this
laws providing for indemnity for damages in cases of labor
case absent a formal declaration of bankruptcy or a liquidation order.
accident, or illness resulting from the nature of the
employment;
A preference applies only to claims which do not attach to specific
5) Credits and advancements made to the debtor for support of
properties. A lien creates a charge on a particular property. The right of first
himself or herself, and family, during the last year preceding
preference as regards unpaid wages recognized by Article 110 does not
the insolvency;
constitute a lien on the property of the insolvent debtor in favor of workers.
6) Support during the insolvency proceedings, and for three
It is but a preference of credit in their favor, a preference in application. On
months thereafter;
the other hand, DBP anchors its claim on a mortgage credit. A mortgage
7) Fines and civil indemnification arising from a criminal offense;
directly and immediately subjects the property upon which it is imposed,
8) Legal expenses, and expenses incurred in the administration
whoever the possessor may be, to the fulfillment of the obligation for whose
of the insolvent’s estate for the common interest of the
security it was constituted. It creates a real right which is enforceable against
creditors, when properly authorized and approved by the
the whole world. It is a lien on an identified immovable property, which a
court;
preference is not. A recorded mortgage credit is a special preferred credit
9) Taxes and assessments due the national government, other
under Article 2242 (5) of the Civil Code on classification of credits. The
than those mentioned in Articles 2241, No. 1, and 2242, No. 1;
preference given by Article 1l0, when not falling within Article 2241 (6) and
10) Taxes and assessments due any province, other than those
Article 2242 (3), of the Civil Code and not attached to any specific property,
referred to in Articles 2241, No. 1, and 2242, No. 1;
is all ordinary preferred credit although its impact is to move it from second
11) Taxes and assessments due any city or municipality, other
priority to first priority in the order of preference established by Article 2244
than those indicated in Articles 2241, No. 1, and 2242, No. 1;
of the Civil Code.
12) Damages for death or personal injuries caused by a quasi-
delict;
13) Gifts due to public and private institutions of charity or Maam: How do you reconcile the preference mentioned in Art. 110 of the
beneficence; Labor Code and those provisions here under the Civil Code in relation to
14) Credits which, without special privilege, appear in (a) a public concurrence and preference of credits?
instrument; or (b) in a final judgment, if they have been the

` Page 59 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

Sir J: The SC ruled that it did not take preference or no. 1 preference or mabayaran na ang specific credit tapos meron pang proceeds pano iapply
making better or higher the or should I say superior than the tax preference yang proceeds? Lahat ng proceeds na sobra na naiwan will be applied in the
or dues. In fact, the tax dues would always be preferred first, however, in order of credits enumerated in Art. 2244. Of course again, the second
relation to what (*interrupted) preference for the worker’s lien on unpaid wages moved to no. 1 and move
expenses to no.2 hanggang maubos. Remember this is not pro-rata, it is in
the order provided.
Mam: In relation to what? We have to be specific..

Now notice also here that we have taxes and assessments due to the
Sir J: In relation to taxes that is found under Arts. 2241(1) and 2242(1) the SC
government so magkasunod yan sila nauna ang favor sa National Gov’t then
held that these would not be preferred given that the obligation would fall
sa province then sa City and Municipality. What would be the examples of
under Art. 2241(6) and Art. 2242(3). Also what really happened was that the
taxes in favour of the National Gov’t? Income taxes (not covered to specific
legislature enacted this law it complicate 2 things because in Art. 2243 there
property). Take note that these refers to free property not subject to 2241
are still limitation within the 1 year prior the insolvency (inaudible) 1st it
and 2242 and applied the order enumerated under 2244 in consideration of
removed that 1 year limitation and 2nd it gained a superior order and
Art. 110 of the LC.
upgraded preference from a second priority to first priority but only second
to taxes falling under Art. 2241(1)
Take note under no. 14 – Eg. Promissory note that is duly notarized. It is a
public instrument, it does not enjoy special privilege in the absence of real
Mam: To distinguish it from Arts. 2241 and 2242. Alright. You are already estate mortgage and among these credits in the public instrument of
familiar with Art. 110 of the Labor Code referring to worker preference in judgment they will be in the order of priority of the dates of the instruments
case of bankruptcy. The employers and workers shall enjoy 1st preference as and judgments, respectively.
regards to their unpaid wages and other monetary claims any provision of
the law to the contrary notwithstanding. Such unpaid wages and monetary Art. 2245. Credits of any other kind or class, or by any other right or title
claims shall be paid in full before the claims of the government and other not comprised in the four preceding articles, shall enjoy no preference.
creditors may be paid. Now first thing that was emphasized in this case is
that in the absence of any proceedings to enforce the rule as to the
preference and concurrence of credit notwithstanding the absence thereof, What if the debtor still has proceeds of the sale of his assets and all the
the SC nevertheless discussed the applicability or the non-applicability of Art. credits mentioned under Arts. 2241, 2242 and 2244 having paid. May sobra
110 of the LC and how it relates with the other provisions in the Civil Code pa meron pang common credits na hindi nabayaran. Now this time, they will
specifically concurrence and preference of credits. Art. 110 did not share pro-rata. No preference and common credits shall be paid pro-rata
necessarily repeal the provisions in Arts. 2241, 2242, and 2244. In other regardless of the dates.
words, the preference mentioned in Art. 110 did not alter Arts. 2241 and
2242. In other words, in those articles, taxes in relation to the specific We have the case of Republic v Peralta
property or those duties in favor of the government would still to be Republic vs. Peralta
preferred and then now the claims of the labourers in relation to that work
of the specific property will share pro-rata with the other credits. FACTS: In the voluntary insolvency proceedings commenced in May 1977 by
Quality Tobacco Corporation (the "Insolvent"), the following claims of
How is this Art. 110 to be applied? That is in relation to Art. 2244. Now, the creditors were filed:
effect of Art. 110 is that hindi pwede yung no. 2 is that the credit rendered in (i) P2,806,729.92, by the USTC Association of Employees and workers Union-
services is insolvent by the labourers or household helpers will now become PTGWO USTC as separation pay for their members. This amount plus an
the no. 1 noh, first preference followed by the proper funeral expenses so additional sum of P280,672.99 as attorney's fees had been awarded by the
that is the first effect. The second effect is that tinanggal na yung 1 year National Labor Relations Commission in NLRC Case No. RB-IV-9775-77.
proceeding, the commencement of the proceeding in insolvency. So here (ii) P53,805.05 by the Federacion de la IndustriaTabaquera y
what happened? Eto na yung preference of a worker’s preference ahead of OtrosTrabajadores de Filipinas ("FOITAF), as separation pay for their
the taxes and duties in favour of the government because here tax dues are members, an amount similarly awarded by the NLRC in the same NLRC Case.
nos. 9, 10, and 11. Again, very relevant ang Art. 2244 in the sense that you (iii) P1,085,188.22 by the Bureau of Internal Revenue for tobacco inspection
should take note to the order as mentioned here and to which the fees covering the period 1 October 1967 to 28 February 1973;
application of course is very much different as compared to Arts. 2241 and (iv) P276,161.00 by the Bureau of Customs for customs duties and taxes
2244. Here again there was no liquidation proceeding, no declaration of a payable on various importations by the Insolvent. These obligations appear
bankruptcy and judicial litigation so it would be first premature to enforce to be secured by surety bonds. 2 Some of these imported items are
the worker’s preference. Now preference applies only to claims attached to apparently still in customs custody so far as the record before this Court
the specific property is the right of the first preference is recognized in Art. goes.
110 again does not constitute a lien on the property of the insolvent debtor
in favour of workers, a preference of credit in their favour. Moreover, Art. In its questioned Order of 17 November 1980, the trial court held that the
110 does not purport to create a lien in favour of employees’ unpaid wages above-enumerated claims of USTC and FOITAF ("Unions") for separation pay
even upon all properties or any particular property owned by their of their respective members embodied in final awards of the National Labor
employers. Here DBP anchored its claim to mortgage credit. The properties Relations Commission were to be preferred over the claims of the Bureau of
subjected thereto it creates a real right which is enforceable against the Customs and the Bureau of Internal Revenue. The trial court, in so ruling,
whole world. Lien on the identified movable property which again must be relied primarily upon Article 110 of the Labor Code which reads thus:
distinguish from a preference. The preference given by Art. 110 when not Article 110. Worker preference in case of bankruptcy — In the event of
falling under Art. 2241(6) and Art. 2242(3) is an ordinary preferred credit bankruptcy or liquidation of an employer's business, his workers shall enjoy
although its impact move to second priority to the first priority under Art. first preference as regards wages due them for services rendered during the
2244 of the Civil Code. Again, no conflict ang Art. 110 from Art. 2244. Take period prior to the bankruptcy or liquidation, any provision of law to the
note of the order of preference which must be followed under Art. 2244. So contrary notwithstanding. Union paid wages shall be paid in full before other
anong mangyari dito? There are other properties which can be sold and the creditors may establish any claim to a share in the assets of the employer.
proceeds would be applied in the order provided under Art. 2244. Another The Solicitor General, in seeking the reversal of the questioned Orders,
scenario would be for example specific property would be sold tapos argues that Article 110 of the Labor Code is not applicable as it speaks of

` Page 60 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

"wages," a term which he asserts does not include the separation pay preference in respect of the particular movable or immovable property to
claimed by the Unions. "Separation pay," the Solicitor General contends, is which the tax liens have attached. Article 2243 is quite explicit: "[T]axes
given to a laborer for a separation from employment computed on the basis mentioned in number 1, Article 2241 and number 1, Article 2242 shall first
of the number of years the laborer was employed by the employer; it is a be satisfied." The claims listed in numbers 2 to 13 in Article 2241 and in
form of penalty or damage against the employer in favor of the employee for numbers 2 to 10 in Articles 2242, all come after taxes in order of precedence;
the latter's dismissal or separation from service. such claims enjoy their privileged character as liens and may be paid only to
the extent that taxes have been paid from the proceeds of the specific
ISSUE 1: WON the above-enumerated claims of USTC and FOITAF ("Unions") property involved (or from any other sources) and only in respect of the
for separation pay of their respective members embodied in final awards of remaining balance of such proceeds. What is more, these other (non-tax)
the National Labor Relations Commission were to be preferred over the credits, although constituting liens attaching to particular property, are not
claims of the Bureau of Customs and the Bureau of Internal Revenue. preferred one over another inter se. Provided tax liens shall have been
satisfied, non-tax liens or special preferred credits which subsist in respect of
HELD 1: Article 97 (f) of the Labor Code defines "wages" in the following specific movable or immovable property are to be treated on an equal basis
terms: and to be satisfied concurrently and proportionately. Put succinctly, Articles
Wage' paid to any employee shall mean the remuneration or earnings, 2241 and 2242 jointly with Articles 2246 to2249 establish a two-tier order of
however designated, capable of being expressed in terms of money, whether preference. The first tier includes only taxes, duties and fees due on specific
fixed or ascertained on a time, task, piece, or commission basis, or other movable or immovable property. All other special preferred credits stand on
method of calculating the same, which is payable by an employer to an the same second tier to be satisfied, paripassu and pro rata, out of any
employee under a written or unwritten contract of employment for work residual value of the specific property to which such other credits relate.
done or to be done, or for services rendered or to be rendered, and includes
the fair and reasonable value, as determined by the Secretary of Labor, of Credits which are specially preferred because they constitute liens (tax or
board, lodging, or other facilities customarily furnished by the employer to non-tax) in turn, take precedence over ordinary preferred credits so far as
the employee. 'Fair and reasonable value' shall not include any profit to the concerns the property to which the liens have attached. The specially
employer or to any person affiliated with the employer. preferred credits must be discharged first out of the proceeds of the
property to which they relate, before ordinary preferred creditors may lay
We are unable to subscribe to the view urged by the Solicitor General. For claim to any part of such proceeds.
the specific purposes of Article 110 and in the context of insolvency
termination or separation pay is reasonably regarded as forming part of the If the value of the specific property involved is greater than the sum total of
remuneration or other money benefits accruing to employees or workers by the tax liens and other specially preferred credits, the residual value will
reason of their having previously rendered services to their employer; as form part of the "free property" of the insolvent — i.e., property not
such, they fall within the scope of "remuneration or earnings — for services impressed with liens by operation of Articles 2241 and 2242. If, on the other
rendered or to be rendered — ." Liability for separation pay might indeed hand, the value of the specific movable or immovable is less than the
have the effect of a penalty, so far as the employer is concerned. So far as aggregate of the tax liens and other specially preferred credits, the
concerns the employees, however, separation pay is additional unsatisfied balance of the tax liens and other such credits are to the treated
remuneration to which they become entitled because, having previously as ordinary credits under Article 2244 and to be paid in the order of
rendered services, they are separated from the employer's service. The preference there set up.
relationship between separation pay and services rendered is underscored
by the fact that separation pay is measured by the amount (i.e., length) of In contrast with Articles 2241 and 2242, Article 2244 creates no liens on
the services rendered. This construction is sustained both by the specific determinate property which follow such property. What Article 2244 creates
terms of Article 110 and by the major purposes and basic policy embodied in are simply rights in favor of certain creditors to have the cash and other
the Labor Code. It is also the construction that is suggested by Article 4 of assets of the insolvent applied in a certain sequence or order of priority.
the Labor Code which directs that doubts — assuming that any substantial Only in respect of the insolvent's "free property" is an order of priority
rather than merely frivolous doubts remain-in the interpretation of the established by Article 2244. In this sequence, certain taxes and assessments
provisions of the labor Code and its implementing rules and regulations shall also figure but these do not have the same kind of overriding preference that
be "resolved in favor of labor." Articles 2241 No. 1 and 2242 No. I create for taxes which constituted liens on
the taxpayer's property. Under Article 2244,
Article 110 must be read in relation to the provisions of the Civil Code (a) taxes and assessments due to the national government, excluding those
concerning the classification, concurrence and preference of credits, which which result in tax liens under Articles 2241 No. 1 and 2242 No. 1 but
provisions find particular application in insolvency proceedings where the including the balance thereof not satisfied out of the movable or immovable
claims of all creditors, preferred or non-preferred, may be adjudicated in a property to which such liens attached, are ninth in priority; (b) taxes and
binding manner. assessments due any province, excluding those impressed as tax liens under
Articles 2241 No. 1 and 2242 No. 1, but including the balance thereof not
Those provisions may be seen to classify credits against a particular insolvent satisfied out of the movable or immovable property to which such liens
into three general categories, namely: (a) special preferred credits listed in attached, are tenth in priority; and
Articles 2241 and 2242, (b) ordinary preferred credits listed in Article 2244; (c) taxes and assessments due any city or municipality, excluding those
and (c) common credits under Article 2245. impressed as tax liens under Articles 2241 No. I and 2242 No. 2 but including
the balance thereof not satisfied out of the movable or immovable property
Turning first to special preferred credits under Articles 2241 and 2242, it to which such liens attached, are eleventh in priority.
should be noted at once that these credits constitute liens or encumbrances
on the specific movable or immovable property to which they relate. Article ISSUE 2: What is the impact Article 110 of the labor Code has had on those
2243 makes clear that these credits "shall be considered as mortgages or provisions of the Civil Code?
pledges of real or personal property, or liens within the purview of legal
provisions governing insolvency." It should be emphasized in this connection HELD 2: A. Claim of the Bureau of Customs for Unpaid Customs Duties and
that "duties, taxes and fees due [on specific movable property of the Taxes- Under Section 1204 of the Tariff and Customs Code.
insolvent] to the State or any subdivision thereof" (Article 2241 [1]) and Clearly, the claim of the Bureau of Customs for unpaid customs duties and
"taxes due upon the insolvent's land or building (2242 [1])"stand first in taxes enjoys the status of a specially preferred credit under Article 2241, No.

` Page 61 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

1, of the Civil Code. only in respect of the articles importation of which by language of a much higher degree of specificity than that exhibited in Article
the Insolvent resulted in the assessment of the unpaid taxes and duties, and 110 of the Labor Code is necessary to set aside the intent and purpose of the
which are still in the custody or subject to the control of the Bureau of legislator that shines through the precisely crafted provisions of the Civil
Customs. The goods imported on one occasion are not subject to a lien for Code. It cannot be assumed simpliciter that the legislative authority, by using
customs duties and taxes assessed upon other importations though also in Article 110 the words "first preference" and "any provision of law to the
effected by the Insolvent. Customs duties and taxes which remain unsatisfied contrary notwithstanding" intended to disrupt the elaborate and
after levy upon the imported articles on which such duties and taxes are due, symmetrical structure set up in the Civil Code. Neither can it be assumed
would have to be paid out of the Insolvent's "free property" in accordance casually that Article 110 intended to subsume the sovereign itself within the
with the order of preference embodied in Article 2244 of the Civil Code. Such term "other creditors" in stating that "unpaid wages shall be paid in full
unsatisfied customs duties and taxes would fall within Article 2244, No. 9, of before other creditors may establish any claim to a share in the assets of
the Civil Code and hence would be ninth in priority. employer." Insistent considerations of public policy prevent us from giving to
"other creditors" a linguistically unlimited scope that would embrace the
B. Claims of the Bureau of Internal Revenue for Tabacco Inspection Fees — universe of creditors save only unpaid employees.
Under Section 315 of the National Internal Revenue Code ("old Tax Code")
It follows that the claim of the Bureau of Internal Revenue for unpaid We, however, do not believe that Article 110 has had no impact at all upon
tobacco inspection fees constitutes a claim for unpaid internal revenue taxes the provisions of the Civil Code. Bearing in mind the overriding precedence
which gives rise to a tax lien upon all the properties and assets, movable and given to taxes, duties and fees by the Civil Code and the fact that the Labor
immovable, of the Insolvent as taxpayer. Clearly, under Articles 2241 No. 1, Code does not impress any lien on the property of an employer, the use of
2242 No. 1, and 2246-2249 of the Civil Code, this tax claim must be given the phrase "first preference" in Article 110 indicates that what Article 110
preference over any other claim of any other creditor, in respect of any and intended to modify is the order of preference found in Article 2244, which
all properties of the Insolvent. order relates, as we have seen, to property of the Insolvent that is not
burdened with the liens or encumbrances created or recognized by Articles
C. Claims of the Unions for Separation Pay of Their Members — Article 110 2241 and 2242. We have noted that Article 2244, number 2, establishes
of the Labor Code does not purport to create a lien in favor of workers or second priority for claims for wages for services rendered by employees or
employees for unpaid wages either upon all of the properties or upon any laborers of the Insolvent "for one year preceding the commencement of the
particular property owned by their employer. Claims for unpaid wages do proceedings in insolvency." Article 110 of the Labor Code establishes "first
not therefore fall at all within the category of speciallypreferred claims preference" for services rendered "during the period prior to the bankruptcy
established under Articles 2241 and 2242 of the Civil Code, except to the or liquidation, " a period not limited to the year immediately prior to the
extent that such claims for unpaid wages are already covered by Article bankruptcy or liquidation. Thus, very substantial effect may be given to the
2241, number 6. "claims for laborers' wages, on the goods manufactured or provisions of Article 110 without grievously distorting the framework
the work done;" or by Article 2242, number 3: "claims of laborers and other established in the Civil Code by holding, as we so hold, that Article 110 of the
workers engaged in the construction, reconstruction or repair of buildings, Labor Code has modified Article 2244 of the Civil Code in two respects: (a)
canals and other works, upon said buildings, canals or other works." To the firstly, by removing the one year limitation found in Article 2244, number 2;
extent that claims for unpaid wages fall outside the scope of Article 2241, and (b) secondly, by moving up claims for unpaid wages of laborers or
number 6 and 2242, number 3, they would come within the ambit of the workers of the Insolvent from second priority to first priority in the order of
category of ordinary preferred credits under Article 2244. preference established I by Article 2244.

Applying Article 2241, number 6 to the instant case, the claims of the Unions Accordingly, and by way of recapitulating the application of Civil Code and
for separation pay of their members constitute liens attaching to the Labor Code provisions to the facts herein, the trial court should inventory
processed leaf tobacco, cigars and cigarettes and other products produced the properties of the Insolvent so as to determine specifically: (a) whether
or manufactured by the Insolvent, but not to other assets owned by the the assets of the Insolvent before the trial court includes stocks of processed
Insolvent. And even in respect of such tobacco and tobacco products or manufactured tobacco products; and (b) whether the Bureau of Customs
produced by the Insolvent, the claims of the Unions may be given effect only still has in its custody or control articles imported by the Insolvent and
after the Bureau of Internal Revenue's claim for unpaid tobacco inspection subject to the lien of the government for unpaid customs duties and taxes.
fees shall have been satisfied out of the products so manufactured by the In respect of (a), if the Insolvent has inventories of processed or
Insolvent. manufactured tobacco products, such inventories must be subjected firstly
to the claim of theBureau of Internal Revenue for unpaid tobacco inspection
Article 2242, number 3, also creates a lien or encumbrance upon a building fees. The remaining value of such inventories after satisfaction of such fees
or other real property of the Insolvent in favor of workmen who constructed (or should such inspection fees be satisfied out of other properties of the
or repaired such building or other real property. Article 2242, number 3, Insolvent) will be subject to a lien in favor of the Unions by virtue of Article
does not however appear relevant in the instant case, since the members of 2241, number 6. In case, upon the other hand, the Insolvent no longer has
the Unions to whom separation pay is due rendered services to the Insolvent any inventory of processed or manufactured product, then the claim of the
not (so far as the record of this case would show) in the construction or Unions for separation pay would have to be satisfied out of the "free
repair of buildings or other real property, but rather, in the regular course of property" of the Insolvent under Article 2244 of the Civil Code. as modified
the manufacturing operations of the Insolvent. The Unions' claims do not by Article 110 of the Labor Code.
therefore constitute a lien or encumbrance upon any immovable property
owned by the Insolvent, but rather, as already indicated, upon the Turning to (b), should the Bureau of Customs no longer have any
Insolvent's existing inventory (if any of processed tobacco and tobacco importations by the Insolvent still within customs custody or control, or
products. should the importations still held by the Bureau of Customs be or have
become insufficient in value for the purpose, customs duties and taxes
Article 110 of the Labor Code did not sweep away the overriding preference remaining unpaid would have only ninth priority by virtue of Article 2244,
accorded under the scheme of the Civil Code to tax claims of the government number 9. In respect therefore of the Insolvent's "free property, " the claims
or any subdivision thereof which constitute a lien upon properties of the of the Unions will enjoy first priority under Article 2244 as modified and will
Insolvent. It is frequently said that taxes are the very lifeblood of be paid ahead of the claims of the Bureau of Customs for any customs duties
government. The effective collection of taxes is a task of highest importance and taxes still remaining unsatisfied.
for the sovereign. It is critical indeed for its own survival. It follows that

` Page 62 of 63
CREDIT TRANSACTIONS FINAL EXAM TRANSCRIPTION
Based on the Lectures of Atty. Jazzie Sarona
2 MANRESA SY 16-17 - AMPARO • CABREROS • CHANYEE • CONFESOR • DEL ROSARIO • KUIT • NITURA • PABALAN • PASTOR

It is understood that the claims of the Unions referred to above do not Art. 2247. If there are two or more credits with respect to the same specific
include the 10% claim for attorney's fees. Attorney's fees incurred by the movable property, they shall be satisfied pro rata, after the payment of
Unions do not stand on the same footing as the Unions' claims for separation duties, taxes and fees due the State or any subdivision thereof.
pay of their members.
“pro-rata” this is our basis that 2-14 of Art. 2244 is pro-rata
Mam: First, do we have a liquidation proceeding/insolvency proceeding that
is required by law in this case? Art. 2248. Those credits which enjoy preference in relation to specific real
Cid: There was a voluntary proceeding. property or real rights, exclude all others to the extent of the value of the
immovable or real right to which the preference refers.
Mam: Yes this time, we already have a proceeding to which we can apply all
these articles.
Art. 2249. If there are two or more credits with respect to the same specific
***
real property or real rights, they shall be satisfied pro rata, after the
payment of the taxes and assessments upon the immovable property or
Mam: Remember, we apply Art. 2241 to specific movable property. In this
real right.
case, what is the specific movable property in relation to the claim of the
BOC?
Arts. 2248-2249 are similar to Arts. 2246-2247 it is just that this Arts. 2248-
Cid: The imported goods Mam
2249 refer to immovable properties. Still the same.
Mam: Okay in relation to that of Tabacco
*** Art. 2250. The excess, if any, after the payment of the credits which enjoy
Mam: Here this time, we already have insolvency __ proceeding involving preference with respect to specific property, real or personal, shall be
voluntary __ proceeding involving the claims of several creditors, unions added to the free property which the debtor may have, for the payment of
including separation pay for workers Tobacco fees in favour of the BIR, the other credits. (1928a)
customs duties and taxes payable on various importations by the BOC.
Other credits here refer to the enumerations under Art. 2244 in the order
The SC emphasized that taxes in favour of BOC and the BIR mentioned here made taking into consideration Art. 110 of the LC.
in relation to specific movable properties and therefore Art. 2241(1) shall be
applied these customs duties and taxes in favour of BOC enjoy the status of a Art. 2251. Those credits which do not enjoy any preference with respect to
specially preferred credit only in respect of the articles importation. The specific property, and those which enjoy preference, as to the amount not
goods imported on one location are not subject again for customs duties and paid, shall be satisfied according to the following rules:
taxes assessed upon other importations. Customs duties and taxes which (1) In the order established in Article 2244;
remained unsatisfied after levy upon the imported articles on which such (2) Common credits referred to in Article 2245 shall be paid pro rata
duties and taxes are due will now then be paid up of the insolvent’s free regardless of dates.
property under Art. 2244. So kung kulang yung imported goods to pay off
the customs duties in favour of the BOC, then saan mahulog? Art. 2244(9) in Again, it emphasized the order in Art. 2244 and if there still remaining
favour of the government because that is a National tax. As to the claim of proceeds it shall be applied to common credits as mentioned under Art.
the BIR for __ inspection fees Art. 2241 is also applicable even in respect of 2245 but this time pro-rata regardless of the dates.
any properties insolvent in relation to Art. 2241.
This rule on preference of credits is not often ask in the bar exams, some say
Separation pay – construed in favour of the labor unions. Claims for unpaid that hindi na daw siya ganun ka-relevant but it is not just common why?
wages do not fall within the catergory of specially preferred claims under Because you apply this only when there is a proceeding. I requires a
Arts. 2241 and 2242 unless it is covered by par. 6 of Art. 2241 and par. 3 of liquidation and insolvency proceedings or the settlement of one’s estate, in
Art. 2242. Now again in those provisions, wala silang preference to share the absence of that you cannot apply rules on concurrence and preference
together with all other credits after taxes. of credits. But once you have the proceeding, that’s the time when you can
apply these rules on concurrence and preference of credits. Among the
SC pointed out that it cannot be assumed that the legislative authority by proceedings mentioned, nothing in the said proceedings made mention who
using in Article 110 the words "first preference" and "any provision of law to among the creditors will be preferred, that would be answered by these
the contrary notwithstanding" intended to disrupt the elaborate and rules.
symmetrical structure set up in the Civil Code. Neither can it be assumed
casually that Article 110 intended to subsume the sovereign itself within the
term "other creditors" in stating that "unpaid wages shall be paid in full
before other creditors may establish any claim to a share in the assets of
employer." Again, it only indicates that it is only intended to modify the
order of preference in Art. 2244 to which from No. 2 it will now be first in the
preference and the 1 year period will be removed. So the effect first is
removing the 1 year limitation and moving unclaimed wages of labourers
and workers from 2nd to 1st priority as provided under Art. 2244.

SC also pointed out that the claims as to the attorney’s fees are not deemed
included for separation pay.
Art. 2246. Those credits which enjoy preference with respect to specific
movables, exclude all others to the extent of the value of the personal
property to which the preference refers.

In relation thereto, we have Art. 2247

` Page 63 of 63